[CHANCERY DIVISION]

In re DIPLOCK. DIPLOCK v. WINTLE (AND ASSOCIATED ACTIONS).

1947 Mar. 11; Apr. 1.

Administration - Mistake in construction of will - Mistake of law - Executors wrongly distribute residue between charitable institutions - Distribution made by cheque - Liability of Charities to next of kin - Claim for money had and received - Right to follow at common law - Application of equitable doctrine of tracing.

The testator by his will gave the residue of his property to his executors upon trust to sell the same and to divide the net residue "between such charitable institution or institutions, or other charitable or benevolent object or objects" as his executors might, in their absolute discretion, think fit. The testator died on March 23, 1936, and his will was proved by three executors. During the years 1936, 1937 and 1938, the executors distributed over 203,000l. between some one hundred and thirty-nine charitable institutions. In each case payment was made by cheque and the recipient institutions paid the cheques into their respective accounts. In most cases the institutions paid the cheque into a general account. In some cases, however, the payment was made to a special account. Where payment was into a general account, which was overdrawn at the time of payment in, the banks concerned were for the most part unsecured. In some cases however, the institution's account was secured by a charge on its assets. In a few cases the executors made it a condition of the grant that the money paid should be applied for a particular purpose, either for building or providing equipment for the institution. In September, 1939, the executors were notified that the testator's next of kin challenged the validity of the testator's residuary gift. In October, 1939, the executors' solicitors wrote to each of the institutions informing them that the validity of the payments to them was challenged. An originating summons was issued in 1940 to have the will construed. It was held by the House of Lords in June, 1944, in Chichester Diocesan Fund and Board of Finance (Incorporated) v. Simpson [1944] A. C. 341, that the trusts of the residuary estate of the testator were void for uncertainty.

The next of kin in these proceedings sought a declaration that the charitable institutions were liable to refund the moneys so paid to them. The plaintiffs admitted that it was not open to them in a court of first intance to contend that the defendant institutions took with notice of the trust.

Held, first, that the rule that the common law action for money had and received was only available where the plaintiff had paid under a mistake of fact was of general application and was not dependent upon the pre-existence of a contract between the parties. The mistake upon which the executors acted was either a mistake as to the technical requisites for the creation of a valid charitable trust, alternatively, it was a mistake as to the construction of the testator's will. In either case the mistake was one of law.

Accordingly, the plaintiff's claim for money had and received failed.

Secondly, that the plaintiffs had not in equity a personal claim against the charitable institutions for the amount of the sums paid to them. Where a personal representative had paid money or transferred property, part of the estate of the deceased, to a person not entitled thereto, in such circumstances as not to make the receipient an express trustee, the only remedy of the person rightfully entitled was either to pursue a common law claim for money had and received in the name of the personal representative or to pursue in equity an analogous action for money had and received in which it would be unnecessary to join the personal representative. In either case the mistake must be one of fact.

Thirdly, that in every case where a defendant institution had paid the money received by it into an account at its bankers, where it was mixed with other moneys of that defendant, institution, the right to follow the money at common law ceased, because the means of identification failed: Banque Belge Pour L'Etranger v. Hambrouck [1921] 1 K. B. 321, and Sinclair v. Brougham [1914] A. C. 398, considered.

Fourthly, that in no case could the plaintiffs invoke the equitable doctrine of tracing and entering the banking account of a defendant institution, because, at the time of payment in, there was not that fiduciary relationship in existence which would have given the plaintiffs the right first to maintain that the defendant institution could not claim any interest in the mixed moneys in the account until the moneys received from the executors had been recouped to the deceased's estate and secondly to claim a charge on the whole of the mixed moneys to secure such recoupment: In re Hallett's Estate (1879) 13 Ch. D. 696, considered.

Fifthly, that, owing to the absence of any fiduciary relationship, the plaintiffs were not entitled to trace through an account and out, with a view to showing that an asset still held by a defendant institution had been acquired in whole or in part with the plaintiff's moneys.

Sixthly, that where a defendant institution had applied the money paid to it in the discharge of a secured debt, the property revested in the defendant institution free from the charge and the charge was not to be deemed to have been kept alive for the benefit of the plaintiffs.

Seventhly, that where the executors had imposed a condition as to how the money given was to be applied by a defendant institution, the acceptance of the condition did not enable that institution to set up the plea of purchaser for value. Dillwyn v. Llewelyn (1862) 4 De G. F. & J. 517, and Taylor v. Blakelock (1886) 32 Ch. D. 560, considered.

WITNESS ACTIONS.

These nineteen actions were heard together. The plaintiffs were the statutory next of kin of Caleb Diplock (hereinafter called "the testator") and the judicial trustee of his will.

The following statement of facts is taken substantially from his Lordship's judgment.

By his will, dated November 3, 1919, the testator (by cl. 6 thereof) gave the residue of his property to his executors upon trust to sell or call in the same with power to postpone, and directed that out of the proceeds of such sale and calling in and out of his ready money his executors should pay his funeral and testamentary expenses and debts and the legacies bequeathed by his will and the duty on any legacies thereinbefore given free of duty and subject thereto should apply the residue "for such charitable institution or institutions or other charitable or benevolent object or objects in England" as his acting executors or executor might, in their absolute discretion, select and to be paid to or for such institutions and objects, if more than one, in such proportions as his executors or executor might think proper; and (by cl. 7 of his said will) the testator declared that the receipts of the treasurer or other proper officer for the time being of any hospital, home or other institution should be a sufficient discharge for any legacy bequeathed given or applied thereto. The testator died on March 23, 1936, without having revoked or altered his will, which was duly proved on May 16, 1936, by three of the executors therein named, the defendants Leslie Charles Wintle (who died on May 7, 1942), Lionel Edwin Charles Handson (who died on July 14, 1940) and Charles Thomas.

During the years 1936, 1937 and 1938, the executors applied ouf of the testator's estate the sum of 203,067l. 10s. or thereabouts by distributing this sum among a hundred and thirty-nine institutions. Each of these institutions was a charitable institution within the meaning of the phrase "legal charity." It will be convenient to refer collectively to those of the one hundred and thirty-nine institutions, which are defendants in this group of nineteen actions, as "the defendant institutions." The distribution was made by cheques sent to the one hundred and thirty-nine institutions (including the defendant institutions) by the defendant Wintle, acting as solicitor for the executors, enclosed in letters each of which was in the following terms: "Dear Sir, Estate of Caleb Diplock, deceased. Grants to London and other charities. The above-named deceased by his will bequeathed his residuary estate for distribution amongst such hospitals and institutions or other charitable or benevolent objects in England as his executors might in their absolute discretion select, and in such

proportion as they might think proper. The executors have decided to allocate a grant of £ (blank) to (blank). We have pleasure in enclosing you herewith a cheque for this amount. We shall be obliged if you will sign and return us the enclosed form of receipt. Faithfully yours."

The executors made all the payments to the defendant institutions by cheque. Those cheques were paid by the respective defendant institutions into their several banking accounts. In most cases the defendant institution paid the cheque into its general account, where the moneys so paid in became mixed with the other moneys of the defendant institution. In some cases the general account at the time of payment in was in credit, in others in debt. When the account was overdrawn some of the defendant institutions had charged their property to secure the overdraft. In others the bank in question had no security. In a few cases the money was paid into a special account.

In making the payments the executors in a few cases had given directions as to the application of the money. In one case they directed the money to be applied in discharging a debt owing by a hospital, in another in erecting a ward, in another in providing certain equipment. The defendant institutions had complied with the directions so given. In certain cases a plaque had been erected on the defendant institution's premises recording the gift. In another a ward had been named after the testator. In September, 1939, the executors were notified that the validity of the beneficial directions in cl. 6 of the testator's will were challenged by the plaintiff John Henry Diplock (who died on June 18, 1940) as one of the next of kin of the testator, on the ground that those directions were void for uncertainty, and that accordingly there was an intestacy as to his residuary estate.

On October 18, 1939, the executors' solicitors wrote to each of the defendant institutions a letter informing it that the validity of the payment to it was challenged, on the ground that the gift of the residue was void for uncertainty and calling upon each of the defendant institutions not to deal in any way with any part of the sum so paid to it, or with the income thereof, until such institution had heard further from the executors' solicitors, and asking to be informed whether the sum so paid to it and the income thereof was still in its hands.

On June 10, 1940, an originating summons was issued by

the executors as plaintiffs against John Henry Diplock, the present plaintiff, the Chichester Diocesan Fund and Board of Finance (Incorporated), Raymond Henry Johnson and His Majesty's Attorney-General as defendants, raising the question of the validity of the trust of residue contained in cl. 6 of the testator's will.

This summons came before Farwell J. on July 18, 1940(1), when he upheld the validity of the trust of residue. On appeal, the Court of Appeal, on January 15, 1941, reversed the decision of Farwell J., declaring that on the true construction of the testator's will the trust of residue contained in cl. 6 of the will was void for uncertainty, and that the residuary estate devolved as upon an intestacy(2).

By a certificate of the Master filed on March 6, 1942, in answer to an inquiry directed in this action, it was certified that the present plaintiffs were all included in the class of persons who, on the death of the testator, became beneficially entitled to any property of his as to which he died intestate.

On December 8, 1943, Clifford Grover Conolly was appointed judicial trustee of the testator's will, and an inquiry was directed as to who upon the death of the testator became beneficially entitled to any property of his as to which he died intestate and for what estate and interests and in what shares and proportions and whether any such persons were since dead and, if they died entitled to any vested share or interest, who were their personal representatives. No certificate had yet been made upon this inquiry.

On April 5, 1944, an order was made in this action approving the compromise of all claims by the present plaintiffs as three of the persons beneficially entitled to any property of the testator as to which he died intestate against the estates of the late defendants Wintle and Handson and against the defendant Thomas and the defendant Lilian Emily Handson (as personal representative of the late defendant Handson) arising under the administration of the estate of the testator, and approving the compromise of all claims by the present plaintiffs, as three of the persons beneficially entitled, as aforesaid against the defendants Thomas and Johnson and the estates of the late defendants Wintle and Handson in respect of a charge established by the executors out of land and money forming part of the testator's residuary estate, and it was ordered that the two compromises should be binding

(1) [1940] Ch. 988.

(2) [1941] Ch. 253.

on all the persons beneficially entitled to any property of the testator as to which he died intestate other than the present plaintiffs, and that the judicial trustee of the testator's estate should carry such compromises into effect. It was further ordered that all proceedings in this action against the defendants Thomas Johnson and Lilian Emily Handson be stayed, except for the purpose of enforcing such terms. Finally, it was provided that the order should be without prejudice to any claim of the present plaintiffs against any of the societies or institutions to which was paid any sum forming part of the residuary estate of the testator.

The defendants the Chichester Diocesan Fund and Board of Finance (Incorporated) appealed to the House of Lords against the Order of the Court of Appeal, and by a judgment of the House of Lords dated June 21, 1944, in Chichester Diocesan Fund and Board of Finance (Incorporated) v. Simpson (1), it was ordered and adjudged that the order of the Court of Appeal be affirmed.

The writ in the first action was issued on January 3, 1940, and the writs in the remaining eighteen actions were issued on July 28, 1945. In these actions the plaintiffs claimed declarations that the respective defendant institutions were liable to refund to the testator's estate the moneys respectively paid to them; alternatively, that the judicial trustee of the testator's will had a charge on the assets of the respective defendant institutions for the money so paid and the enforcement of such charge.

Pascoe Hayward K.C., Fawell and J. L. Arnold for the plaintiffs.

J. Monckton for the judicial trustee.

Neville Gray K.C. and Geoffrey Cross for the defendants the Middlesex Hospital.

Pennycuick for the defendants St. George's Hospital.

Jennings K.C. and Wigglesworth for the defendants, the Chichester Diocesan Fund and Board of Finance (Incorporated.)

Andrew Clark K.C. and G. C. Dunbar for the defendants, the London Hospital, the National Children's Orphanage, St. Thomas's Hospital, the Royal Sussex County Hospital, Dr. Barnardo's Homes and the National Institute for the Deaf.

G. C. Dunbar for the defendants, the Prince of Wales' Hospital, Plymouth, the Royal Alfred Merchant Seamen's Institution and the Leaf Homoeopathic Hospital.

(1) 1944 A. C. 341.

R. W. Goff for the defendants, the Royal Eye Hospital, Eastbourne, St. Mary Hall, Brighton (Incorporated), The Royal Sailors Girls' School and Home and the Royal United Kingdom Beneficent Association.

Jenkins K.C. and J. H. Stamp for the defendants, the Westminster Hospital, the Heritage Craft Schools, the Charing Cross Hospital; the Queen Alexandra Cottage Homes and Guy's Hospital.

Danckwerts for the Attorney-General.

The arguments of counsel sufficiently appear from his Lordship's judgment.

March 11, 1947. The following judgment was read.

WYNN-PARRY J. The plaintiffs in each of these actions are among the persons entitled under the Administration of Estates Act, 1925, to share in such part of the estate of Caleb Diplock, deceased (to whom I will refer as "the testator") as to which he died intestate. These actions, nineteen in number, are brought by the plaintiffs as such next of kin to recover from such of the respective defendants as received them sums forming part of the residuary estate of the testator, paid to such defendants by the executors of the testator in circumstances which will be detailed later in this judgment. These actions are part of a larger number of actions, totalling in all a hundred and twenty, which raise claims substantially similar to the various claims raised in these actions; these nineteen actions are regarded as typical or representative of the claims which can be put forward by or on behalf of the next of kin of the testator in the circumstances detailed later; and upon the ultimate decisions in these actions will probably depend the fate of the claims in the other larger number of actions.

In these present actions, the plaintiffs and the defendants have put forward certain points by way of claim and defence, each of which raises a question of principle. All the relevant facts have been agreed between the plaintiffs and the respective defendants, a course which has had the result of saving considerable time and expense, and the whole of the facts were opened before me. In the course of the hearing, however, it was agreed that the convenient course to follow, and the course which I propose to follow in this judgment, is as follows: I shall state only those facts which, in my view, are necessary

to raise the questions of principle which have been argued. I shall then state those questions of principle and decide them; I shall then adjourn this case to give the parties an opportunity to agree, so far as they can, the order which should be made in each action having regard to the special facts of that action, and my decision on the principle or principles applicable thereto; and finally, the case will be restored before me, when I can deal with any difficulty which may have arisen and direct what order is to be made in each case.

[His Lordship stated the facts set out above, and continued:]

These are all the facts to which it is necessary to refer for the purpose of considering and adjudicating on the questions of principle raised by the plaintiffs and defendants respectively. The first three propositions put forward on behalf of the plaintiffs are propositions which, if well founded, are applicable in all the nineteen actions, subject to any special defences. I propose therefore, to deal first with these three points.

The first proposition on behalf of the plaintiffs was put forward by Mr. Pascoe Hayward on their behalf in these terms: If a person is entitled in equity to property, or to a sum of money, and if that property or sum is transferred or paid to another person who is not a purchaser for value without notice, the person entitled in equity has a personal claim in equity against the recipient for the value of the property transferred or the amount of the sum paid.

The same point was put forward by Mr. Fawell in these terms: Where A., without giving adequate consideration in equity, receives from B. money which belongs to C., B. is under an equitable obligation to account to C.

The second proposition on behalf of the plaintiffs was that each of the defendant institutions took with notice of the trust in favour of the plaintiffs.

The third proposition on behalf of the plaintiffs was that they have a personal claim at law against the defendant institutions for money had and received.

It will be convenient to deal with the second proposition first. This proposition was not argued. Counsel for the plaintiffs stated in his opening that he was constrained to admit that, in the present state of the authorities on the subject, it was not open to the plaintiffs to maintain this proposition in a court of first instance, though they desired to keep the point open in case the matter should go further. I must, therefore, proceed upon the basis that the letter written to each of the defendant

institutions in the terms which I have already indicated did not operate to give them notice of the trust in favour of the plaintiffs.

I propose now to consider the plaintiffs' third proposition, because, in my view, the nature and extent of any personal claim which the plaintiffs may have in equity can only properly be appreciated after an examination of the nature and extent of the common law action for money had and received.

The action for money had and received is a common law action on the case founded upon an implied promise to pay which the law implies where A. has paid money to B. under a mistake of fact, the law setting up for the purpose of the claim the relationship of debtor and creditor between the parties.

It is now settled beyond dispute that the action is only available where the plaintiff has paid under a mistake of fact; it is not available where he has paid under a mistake of law. Reference for this proposition can be made to a multitude of authorities, but it will be sufficient to refer to the following cases. In Kelly v. Solari (1), Parke B., said: "I think that where money is paid to another under the influence of a mistake, that is, upon the supposition that a specific fact is true, which would entitle the other to the money, but which fact is untrue, and the money would not have been paid if it had been known to the payer that the fact was untrue, an action will lie to recover it back, and it is against conscience to retain it; though a demand may be necessary in those cases in which the party receiving may have been ignorant of the mistake. The position that a person so paying is precluded from recovering by laches, in not availing himself of the means of knowledge in his power, seems, from the cases cited, to have been founded on the dictum of Bayley J., in the case of Milnes v. Duncan (2); and with all respect to that authority, I do not think it can be sustained in point of law."

In the same case, Rolfe B., said(3): "With respect to the argument, that money cannot be recovered back except where it is unconscientious to retain it, it seems to me, that wherever it is paid under a mistake of fact, and the party would not have paid it if the fact had been known to him, it cannot be otherwise than unconscientious to retain it."

In Maskell v. Horner (4) Rowlatt J. said: "The plaintiff

(1) (1841) 9 M. & W. 54, 58.

(2) (1827) 6 B. & C. 671.

(3) 9 M. & W. 54, 59.

(4) [1915] 3 K. B. 106, 108.

claims to recover these sums as paid under a mistake of fact, or, alternatively, as paid not voluntarily, but to prevent his goods being seized and under protest. I think it is necessary to state two principles of law to which he appeals and then to see if the circumstances bring him within either. To recover under the first principle there must be a mistake of fact and a fact going to the supposed liability. That is laid down in Kelly v. Solari (1) and Aiken v. Short (2). An action on this ground, therefore, can only be brought by one who pays, believing in his liability, because by mistake he believes a fact upon which his liability depends."

In the Court of Appeal, Lord Reading L.C.J., said(3): "I will deal first with the claim under a mistake of fact. It is an essential condition of the plaintiff's right to recover under this head that he should establish that he paid the money in the belief that a fact was true which was untrue."

The principle appears clearly from the judgments of the Court of Appeal in Holt v. Markham (4), and it is stated in terms by Atkinson J. in Anglo-Scottish Beet Sugar Corporation, Ld. v. Spalding U.D.C. (5): "It is, of course, common ground that mistake of law does not entitle a person paying to recover money; and a mistake in the construction of a contract is treated as mistake of law ...."

It was argued on behalf of the plaintiffs that all the cases where mistake of law has been held to preclude recovery were cases where there was a contractual nexus between the parties. It was, it was said, because of that nexus that the recipient of money was held liable to pay. It was, however, admitted that where two parties are in legal relationship arising from contract, it is impossible to deny that the construction of any document defining their relationship must be a matter of law. It was then urged that here there was no nexus between the next of kin and the defendant institutions, or between the executors and the defendant institutions.

It appears to me, however, that in view of the circumstances already referred to - that the action for money had and received is based on an implied promise to repay, and that for the purpose of the claim the relationship of debtor and creditor subsists between the parties - this argument necessarily breaks down, and that it is immaterial whether or not there was a contractual nexus in fact. The rule that the mistake

(1) 9 M. & W. 54.

(2) (1856) 1 H. & N. 210.

(3) [1915] 3 K. B. 106, 117.

(4) [1923] 1 K. B. 504.

(5) [1937] 2 K. B. 607, 615.

upon which an action for money had and received must be based must be a mistake of fact is, in my view, of completely general application, and in no way depends upon the pre-existence in fact of a contract, written or oral, between the parties. The plaintiff in any action for money had and received must, as an essential condition of success, be able to show that he paid the money claimed under a mistake of fact. It was indeed pleaded that the mistake in this case was a mistake of fact.

Paragraph 31 of the statement of claim reads as follows: "The several sums so paid to the defendant institutions as aforesaid were paid by the defendant executors as a result of a mistake of fact, that it to say a mistake, as to the class of beneficiaries interested in the testator's residuary estate." It was argued that the mistake was a mistake as to the persons entitled in equity to the fund. It was said that all mistakes of that nature - that is, all mistakes of title - are fundamentally mistakes of fact, though such a mistake may arise from a mistake of law, and Anglo-Scottish Beet Sugar Corporation, Ld. v. Spalding U.D.C. (1), was relied on in support of this argument.

Thus, the crucial question arises, what was the nature of the mistake in this case. In my judgment it was a mistake as to part of the general law of England; but, if I am wrong in that view, then, in my judgment, it was a mistake as to the construction of the testator's will.

It may be that in certain cases of payment of money there is involved a mistake of fact and a mistake of law, or there may be a mistake partly of fact and partly of law. The vital consideration in each case is what was the mistake which occasioned the payment; Holt v. Markham (2), and Anglo-Scottish Sugar Beet Corporation, Ld. v. Spalding U.D.C. (1).

The mistake which was actually made here is concisely stated in para. 5 of the affidavit of the late defendant Wintle, sworn by him in support of the originating summons taken out, as I have already stated, to test the validity of the residuary gift. Paragraph 5, so far as material, reads as follows: "In the belief that the trust contained in cl. 6 of the testator's will with regard to the disposition of the testator's residuary estate was a valid charitable trust my co-plaintiffs and I paid to the societies and institutions .... the several sums" in question.

In my view, that means that the mistake upon which the

(1) [1937] 2 K. B. 607, 615.

(2) [1923] 1 K. B. 504.

executors acted was the mistaken belief that a gift for charitable or benevolent purposes was a valid charitable gift in English law, whereas in truth it is a gift which in English law is void for uncertainty. It was a mistake as to the complicated technical requisites for the creation of a valid charitable trust. The term "charitable" is a term of art ascertainable by reference to the preamble of the Statute of Elizabeth, to the objects there enumerated and all others which "by analogies are deemed within its spirit and intendment" - see per Lord Simonds in Chichester Diocesan Fund and Board of Finance (Incorporated) v. Simpson (1) - the case in which this residuary bequest was finally pronounced to be invalid. It is very different from the word "charitable" as used in the ordinary sense of the word as will be seen from In re Macduff (2). Stirling J., as he then was, said(3): "The question then arises whether a bequest for 'charitable or philanthropic purposes' is valid according to the law of England. In order that it may be valid, the purposes as defined by the testator's will must be 'charitable' in the technical sense in which that word is used in this court."

In Chichester Diocesan Fund and Board of Finance (Incorporated) v. Simpson (4), Lord Simonds said: "My Lords, of those three words your Lordships will have no doubt what the first, 'charitable,' means. It is a term of art with a technical meaning and that is the meaning which the testator must be assumed to have intended. If it were not so, if in this will 'charitable' were to be given, not its legal, but some popular, meaning, it would not be possible to establish the validity of the bequest. The last of the three words 'benevolent' is not a term of art. In its ordinary meaning it has a range in some respects far less wide than legal charity, in others somewhat wider."

If, however, I am wrong in that view, then in my judgment the essential mistake was one of construction of the will. Upon no view can I see that any mistake of fact was involved at all. At the least it was a mistake as to the construction of the will as a whole, and the application to it of the decided cases. The only fact which the executors took into consideration was the actual wording of the will. As to this, there was no dispute, and therefore there could be no mistake of fact.

Now, it is plain that an action for money had and received

(1) [1944] A. C. 341, 371.

(2) [1896] 2 Ch. 451.

(3) Ibid. 455.

(4) [1944] A. C. 341, 368.

cannot be founded on a mistake of law. It is equally clear that such an action cannot be founded upon a mistake of construction; see per Atkinson J. in Anglo-Scottish Beet Sugar Corporation, Ld. v. Spalding U.D.C. (1). See also Rogers v. Ingham (2), where it is assumed that the construction of a will is a question of law; and In re Hatch (3), where the construction of a deed is treated as a question of law.

Against this weight of authority is urged the dictum of Lord Westbury in Cooper v. Phibbs (4), where he said: "The result, therefore, is, that at the time of the agreement for the lease which it is the object of this petition to set aside, the parties dealt with one another under a mutual mistake as to their respective rights. The petitioner did not suppose that he was, what in truth he was, tenant for life of the fishery The other parties acted upon the impression given to them by their father, that he (their father) was the owner of the fishery, and that the fishery had descended to them. In such a state of things there can be no doubt of the rule of a Court of equity with regard to the dealing with that agreement. It is said 'ignorantia juris haud excusat'; but in that maxim the word 'jus' is used in the sense of denoting general law, the ordinary law of the country. But when the word 'jus' is used in the sense of denoting a private right, that maxim has no application. Private right of ownership is a matter of fact; it may be the result also of matter of law; but if parties contract under a mutual mistake and misapprehension as to their relative and respective rights, the result is, that that agreement is liable to be set aside as having proceeded upon a common mistake."

This dictum has given rise to much subsequent discussion and also to criticism, a recent example being the remarks of Lord Atkin in Bell v. Lever Brothers, Ld. (5), where he said: "Corresponding to mistake as to the existence of the subject-matter is mistake as to title in cases where, unknown to the parties, the buyer is already the owner of that which the seller purports to sell to him. The parties intended to effectuate a transfer of ownership: such a transfer is impossible: the situation is naturali ratione inutilis. This is the case of Cooper v. Phibbs (4) .... To such a case Lord Westbury applied the principle that if parties contract under a mutual

(1) [1937] 2 K. B. 607, 615.

(2) (1876) 3 Ch. D. 351.

(3) [1919] 1 Ch. 351.

(4) (1867) L. R. 2 H. L. 149, 170.

(5) [1932] A. C. 161, 218.

mistake and misapprehension as to their relative and respective rights the result is that the agreement is liable to be set aside as having proceeded upon a common mistake. Applied to the context the statement is only subject to the criticism that the agreement would appear to be void rather than voidable. Applied to mistake as to rights generally it would appear to be too wide. Even where the vendor has no title, though both parties think he has, the correct view would appear to be that there is a contract, but that the vendor has either committed a breach of a stipulation as to title, or is not able to perform his contract. The contract is unenforceable by him but is not void."

I think the true view is that the dictum must be read in its proper context, that is, in regard to an equitable claim for equitable relief, for example, setting aside a contract, as part of which relief repayment of money may be directed, in which case no difficulty arises, because in certain cases where equitable relief is sought, a mistake of law is not necessarily fatal. In the light of the modern authorities, however, it cannot be prayed in aid for the proposition that a mistake of construction is a mistake of private rights, and is therefore a mistake of fact which will found a claim for the repayment of money; and, in my respectful view, Lord Westbury never intended to say any such thing.

For these reasons, therefore, the plaintiffs' claim for the return of the money paid to the defendant institutions, in so far as it is based on a claim for money had and received, fails.

I now turn to the first proposition put forward on behalf of the plaintiffs to which I have already referred. I must proceed to examine this proposition upon the basis that the recipient, postulated by Mr. Pascoe Hayward and Mr. Fawell, receives without such notice as would make him an express trustee. The plaintiffs' counsel were unable to cite any reported case or to point to any accepted text book on equity in which the proposition as enunciated, or substantially as enunciated by them, was stated. In his reply, Mr. Pascoe Hayward disclaimed that he was putting forward a wide proposition. He disclaimed any attempt to put forward a proposition based merely upon what must be regarded as ex aequo et bono, or what has been conveniently referred to as "justice between man and man." He was constrained to accept (and, in my view, rightly) that the existence of any general head of equity based on those unsatisfactorily vague principles has been

exploded. In this regard I need only refer first to the judgment of Hamilton L.J. (as he then was) in Baylis v. Bishop of London (1), where, having quoted from the judgment of James L.J. in Rogers v. Ingham (2), he said: "In effect, therefore, both the equitable and the legal considerations applicable to the recovery of money paid under a mistake of fact have been crystallized in the reported common law cases. The question is whether it is conscientious for the defendant to keep the money, not whether it is fair for the plaintiff to ask to have it back. To ask what course would be ex aequo et bono to both sides never was a very precise guide, and, as a working rule, it has long since been buried in Standish v. Ross (3) and Kelly v. Solari (4). Whatever may have been the case a hundred and forty-six years ago, we are not now free in the twentieth century to administer that vague jurisprudence which is sometimes attractively styled 'justice as between man and man'." These remarks, in my judgment, are applicable to equity in general, and not merely to those equitable considerations imported by the common law courts into the action for money had and received, and upon which it has been developed. For myself, I am unable to agree that the proposition put forward by the plaintiffs is a narrow, or comparatively narrow, proposition. It appears to me to be of wide import, but that, of course, is not a circumstance which of itself precludes its existence. The plaintiffs maintain that it is to be extracted from a perusal of the authorities, not in any one authority, but as the result of the cumulative effect of a number of the authorities.

I proceed, therefore, to a consideration of the authorities upon which the plaintiffs rely. In considering these cases it is, I think, necessary to bear in mind, for reasons which will appear later, that it is an essential part of the plaintiffs' proposition that mistake, whether of law or fact, is an irrelevant consideration They postulated the example of a distribution by executors of a will similar in terms to the will under consideration in this case where the executors, being under no misapprehension as to the invalidity of their testator's directions, yet insist in making the distribution among bodies similar in character to the defendant institutions. This example was characterized by counsel for the defendants as highly improbable. Be it so; nevertheless the plaintiffs' counsel clearly had to put their case as high as this.

(1) [1913] 1 Ch. 127, 140.

(2) 3 Ch. D. 351.

(3) (1849) 3 Ex. 527.

(4) 9 M. & W. 54.

The first five cases relied on were Gillespie v. Alexander (1); Greig v. Somerville (2); David v. Frowd (3); Sawyer v. Birchmore (4); and Thomas v. Griffith (5). In each of these cases there was, or had been, an administration action; a distribution partial or complete, had been directed by the court; and the creditor or beneficiary who claimed payment was allowed to do so in the administration action where it was still on foot, or, in separate proceedings, where the proceedings in the administration action had been completed.

An analysis of these cases discloses two points of significance. In the first place, the distribution had in each case been made pursuant to an order of the court in an administration action, and, in the second place, the mistake, pursuant to which in each case the money had been paid, was a mistake of fact. As regards the first point, the basis upon which the distribution was ordered is explained first by a reference to the judgment of Sir John Leach M.R., in David v. Frowd (6), where he says:

"It is argued, also that the case is extremely hard upon the party who is to refund, for that he has full right to consider the money as his own, and may have spent it, and that it would be against the policy of the law to recall money which a party has obtained by the effect of a judgment upon a litigated title. There is here no judgment upon a litigated title; the party, who now claims by a paramount title, was absent from the court, and all that is adjudged is, that upon an inquiry, in its nature imperfect, parties are found to have a prima facie claim, subject to be defeated upon better information. The apparent title under the Master's report is in its nature defeasible. A party claiming under such circumstances has no great reason to complain that he is called upon to replace what he has received against his right; complaints of hardship come with little force from the party who seeks to support a wrong."

Secondly, reference may be made to the exposition of the practice of the old Court of Chancery, and now of the Chancery Division, in administration actions to be found in the opinion of Lord Davey in Harrison v. Kirk (7).

As regards the second point, namely, that the mistake in each case was a mistake of fact, that necessarily follows from an

(1) (1826) 3 Russ. 130.

(2) (1830) 1 Russ. & My. 338.

(3) (1833) 1 My. & K. 200.

(4) (1836) 1 Keen 391.

(5) (1860) 2 Giff. 504.

(6) 1 Myl. & K. 200, 211.

(7) [1904] A. C. 1, 5.

examination of the facts; it was in each case a question of whether a person was a creditor, or whether a person was one of the next of kin of the deceased, in either case clearly a question of fact. In my view, therefore, these cases, properly considered, do not support the wide proposition for which the plaintiffs contend.

The next case relied on was the case of Harris v. Harris (1). Having regard, however, to the exhaustive and searching examination and criticism to which this case was subjected by Warrington J. (as he then was) in In re Robinson (2), Mr. Pascoe Hayward was constrained to admit that he could not place much reliance on this case.

The plaintiffs relied strongly on passages from the judgments of Mellish L.J. and Baggallay J.A. in Rogers v. Ingham (3). That was a case in which:

"An executor, acting on the advice of counsel on the construction of a will, proposed to divide in certain proportions a fund between two legatees. One of the legatees being dissatisfied took the opinion of counsel, which agreed with the former opinion. The executor then divided and paid over the fund in accordance with the opinions. Two years afterwards the dissatisfied legatee filed a bill against the executor and the other legatee, alleging that the will had been wrongly construed, and claiming repayment from the other legatee"; and it was held that the suit could not be maintained. Mellish L.J., said(4): "There is no doubt as to the rule of law that money paid with a full knowledge of all the facts, although it may be under a mistake of law on the part of both parties, cannot be recovered back; and I think it is equally clear that, as a general rule, the court of equity did not, in such cases, interfere with the courts of law .... I think there is no doubt that the rule at law is in itself an equitable and just rule which is not interfered with by courts of equity; but, on the other hand, I think that, no doubt, as was said by Turner L.J.: 'This court has power (as I feel no doubt that it has) to relieve against mistakes in law as well as against mistakes in fact'; that is to say, if there is any equitable ground which makes it, under the particular facts of the case, inequitable that the party who received the money should retain it." It is to be observed that the learned lord justice, having stated the established rule of law

(1) (1861) 29 Beav. 110.

(2) [1911] 1 Ch. 502.

(3) 3 Ch. D. 351.

(4) Ibid. 357.

that money paid under a mutual mistake of law cannot be recovered back, said that "as a general rule, the Court of Equity did not, in such cases, interfere with the courts of law." It was only after making this observation that he referred to the power of the court of equity, in granting equitable relief, to order repayment of money where the mistake in question was a mistake of law. The passage in question is no authority for the proposition that there is a general rule of equity that a court of equity will entertain a mere money claim, where the payment was made under a mistake of law.

Baggallay J. A. said(1): "I am of the same opinion, and I merely wish to add that while I give a general assent to the passage in the judgment of Lord Brougham (in Clifton v. Cockburn) (2) which has been referred to in the course of the argument, in which he expressed himself to the effect that cases might arise in which it would be the duty of the court to relieve against an error of law, I do not think that the present is a proper case for the application of such a principle." This is a most guarded statement not referring to any specific case in which equity would relieve upon a mistake of law, and couched in the subjunctive mood. The plaintiffs can gain little or no support from this passage.

But their difficulty in relying on this case appears to me to be manifestly increased when reference is made to what James L.J. said(3): "I have no doubt that there are some cases which have been relied on, in which this court has not adhered strictly to the rule that a mistake in law is not always incapable of being remedied in this court; but relief has never been given in the case of a simple money demand by one person against another, there being between those two persons no fiduciary relation whatever, and no equity to supervene by reason of the conduct of either of the parties." Those words seem to me to apply with full force to the claim in this case which I am now considering.

The plaintiffs then relied on In re Robinson (4). They admit, as they must, that it is not an express decision in their favour, but they point out that the decision turned on the application of the Statutes of Limitation, and contend that by implication the case recognizes a special principle of equity relating to the recovery of a trust fund by one cestui que trust from another, where it has been wrongly dealt with by the trustee. The

(1) 3 Ch. D. 358.

(2) (1834) 3 Myl. & K. 99.

(3) 3 Ch. D. 355.

(4) [1911] 1 Ch. 502.

headnote in this case, which, in my view, is amply borne out by the judgment, is as follows(1): "An action brought in the Chancery Division by one cestui que trust against another cestui que trust to recover money wrongly paid by the trustee to the latter under a common mistake of fact is in the nature of a common law action for money had and received, and the court, acting on the analogy of the Limitation Act, 1623, will hold the claim to be barred after the lapse of six years. The case would be different if the claim were made in an action in which the court was administering the trust estate. There, if there were assets to which the over-paid cestui que trust was entitled, the court would adjust the accounts as between the parties entitled, and lapse of time would be no bar."

So that at first sight the case does not appear very helpful to the plaintiffs. Warrington J. (as he then) was pointed out that the claim was a mere money demand(2). Then, having adverted to the fact that the claim was not by the person who paid it, but by the person whose money was paid away, he treated the claim as being either a strict claim in law for money had and received, or as an analogous claim in equity to which, therefore, equity by analogy would apply the Statutes of Limitation. He examined the contention of the plaintiff that in regard to a mere money demand there was a claim in equity, other than a claim analogous to the common law action of money had and received, and, in my judgment, so far from having, by implication, admitted the existence of such a claim in equity, the learned judge, when his judgment is considered as a whole, negatived it.

The plaintiffs also relied on In re Mason (3). The facts in this case were that: "A lunatic, at the date of her death in 1798, was entitled to certain funds in court representing the residuary estate of her father. In 1794, the Master had reported that the lunatic had no heir at law or next of kin. In 1798 and 1801 the Crown made ex gratia grants of these funds to certain persons and obtained an indemnity in respect of these grants. In 1926, a petition was presented by persons claiming to be the next of kin of the lunatic for the payment to them of the whole of her personal estate." The case was decided against the suppliants upon the ground that the claim was barred by the Limitation Act, 1623.

Mr. Pascoe Hayward, however, contended that, by implication,

(1) [1911] 1 Ch. 502,

(2) Ibid. 502, 507, 508.

(3) [1928] Ch. 385.

the case shows that the equitable principle for which he contends exists. His argument is that if this principle did not exist, then logically that point should have been taken, and would have been taken, as the first point on behalf of the Crown. I cannot accept this reasoning either as conclusive, or indeed as satisfactory. In the first place, no such proposition as that for which the plantiffs contend was put forward by counsel for the suppliants. Their case, so far as relevant, proceeded upon the basis that all parties knew the property was subject to a trust, and that, where such knowledge exists, the statute can have no application. This contention was countered on behalf of the Crown by the argument that the claim was like that in In re Robinson (1), that is, an action for money paid under a mistake of fact, and was therefore barred in six years.

Romer J. (as he then was) having analysed the claim said(2): "It is, in other words, a claim by a cestui que trust to recover from a third party money which his trustee has by mistake paid to that third party. Such a claim is one for money had and received. Now it was pointed out by Warrington J. in In re Robinson (1), to which I must refer presently, that it may be a matter of some doubt whether, in strictness, the cestui que trust in such a case could maintain an action against the third party for money had and received, though he could at all events maintain a suit in equity for it, making the trustee a party. But in such a suit the cestqui que trust would have no better right than the trustee would have in an action brought by himself, and if the claim of the trustee would be barred in an action at law by any Statute of Limitations, the claim of the cestui que trust, so far as it was one for money had and received, would be equally barred." It is plain, therefore, that Romer J. treated the claim by the suppliants as a money demand maintainable only by an action for money had and received at common law, or by an analogous claim in equity. I cannot, therefore, regard this case as supporting the plaintiffs' third proposition.

I now turn to the case of In re Rivers (3), which was strongly relied on by the plaintiffs. They prayed this case in aid as showing, first, that the earlier five cases to which I have referred - Gillespie v. Alexander (4); Greig v. Somerville (5); David v. Frowd (6); Sawyer v. Birchmore (7); and Thomas

(1) [1911] 1 Ch. 502.

(2) [1928] Ch. 385, 391.

(3) [1920] 1 Ch. 320.

(4) 3 Russ. 130.

(5) 1 Russ. & My. 338.

(6) 1 Myl. & K. 200.

(7) 1 Keen 391.

v. Griffiths (1) - are all still good law, a proposition which no one doubts; and, secondly, to show that this case of In re Rivers (2) affords an example (indeed, so far as the industry of the plaintiffs' counsel could show, and that industry was manifest, the only example) in modern times of the application of the principle of equity for which the plaintiffs contend, and which they say is to be extracted from the cases. This case, they say, is clear authority for the proposition which they advance, that it is a case in which repayment of money was ordered, although it had not been paid and received under a mistake of fact.

In my judgment, the case, when examined, does not help the plaintiffs. It is, I think, a simple example of a person receiving a payment otherwise than in due course of administration and being compelled to submit to an adjustment. It was for that reason, I think, that counsel for the defendants in that case was constrained to admit that he could not rely on the Statutes of Limitation. So regarded, the case falls within, and is but a further illustration of the principle emerging from, the five cases to which I have referred. I would add that, in so far as it may be necessary to do so, I take the view that in this case a mistake of fact was involved.

The defendants, for reasons which I think sufficiently appear, from my analysis of the cases in question, in seeking to deny the existence of any such equity as that for which the plaintiffs contend, relied on the cases of Rogers v. Ingham (3), In re Mason (4), and In re Robinson (5). In addition, they relied on a number of cases to which I must refer.

The first is the case of Hilliard v. Fulford (6). The relevant part of the headnote in the case reads as follows: "Where, after executors had made a partial distribution of the residue, an administration action was instituted by the residuary legatees who had not received their shares, and it then turned out that the executors had made two mistakes, first, in making their distribution upon an erroneous assumption that the residue was divisible among five persons instead of six; and, secondly, in expending part of the general personal estate in repairs of property specifically devised: Held,that the overpaid residuary legatees could not be made to refund, that the executors must stand in the same position

(1) 2 Giff. 504.

(2) [1920] 1 Ch. 320.

(3) 3 Ch. D. 351.

(4) [1928] Ch. 385.

(5) [1911] 1 Ch. 502.

(6) (1876) 4 Ch. D. 389.

as if no distribution had taken place, and that the costs of the action should be paid as out of the entire residuary estate, so as to charge the executors with the share of costs attributable to each of the distributed shares; and then that the executors should pay the balance necessary to make up to the unpaid legatees one-sixth of the residue each."

Sir George Jessel M.R., said(1): "The suit now comes on for hearing on further consideration; and it seems that, after paying all the costs of the suit, the result will be that the executors will have paid probably more than their shares to the adult residuary legatees; that is, if the estate were now to be distributed, they would not get as much as 750l. each. The question is, who is to make good the difference? That is really what it comes to."

It is important to bear that statement in mind in view of as later observation in the judgment. The Master of the Rolls said(2): "But where, as in this case, the accounts are substantially incorrect, and where the executors have made two most serious mistakes, one in choosing to take upon themselves the office of the court in construing an obscure will, and construing it wrongly, and secondly, making so serious an error as laying out as much as 1,095l. repairing a freehold which did not belong to their cestuis que trust, I think the executors cannot be allowed to say that the distribution is a proper distribution, and that it ought to avail them when the accounts come to be subsequently taken. I think they must stand in the same position as if there had been no distribution at all. Therefore I think the right order is that the whole costs of the administration suit should be taken out of the estate as if they had never divided it, so that the plaintiff and the infant defendant will be entitled to exactly the same shares out of the residuary estate as if no distribution had taken place and the other residuary legatees had been made defendants. Of course you cannot make those other residuary legatees pay back anything. There is no pretence for saying that they can be compelled to come in and contribute. Therefore the difference, which I think cannot be very large, will in substance have to be made good by the executors who wrongly distributed the estate: they who have made the error will have to pay for it."

Now, it was strongly contended on behalf of the plaintiffs that the words which I have read: "Of course you cannot make

(1) 4 Ch. D. 392.

(2) Ibid. 393.

those other residuary legatees pay back anything. There is no pretence for saying that they can be compelled to come in and contribute"(1), must be taken to relate only to a contribution to costs, and that they cannot be regarded as indicating that Sir George Jessel M.R., entertained the view that, had it not been merely a deficiency as regards costs, contribution could not have been claimed from the other residuary legatees. I do not share this view. It is true that in the result the matter was reduced to a question of contributing towards the costs, but, in my opinion, the whole of the reasoning in the judgment shows that the Master of the Rolls considered that no repayment for costs or otherwise could be claimed from the other residuary legatees. When he says(2): "The question is, who is to make good the difference? That is really what it comes to," he is referring to a deficiency in shares, and not to costs. Again, when he says(1): "There is no pretence for saying that they can be compelled to come in and contribute," he does so because of what he has said in the preceding sentence: "Of course you cannot make those other residuary legatees pay back anything," a statement of general application, and certainly not limited to a contribution to costs.

In my view, therefore, this case tends strongly to negative the existence of the equitable principle for which the plaintiffs contend, and it is of considerable importance in this matter because, as I interpret it, it is authority for the proposition that a mistake of construction in regard to a will is a mistake of law, and that a payment by executors to a legatee under such a mistake of law will be a bar to a personal claim by other persons entitled under the will, who have either been under-paid or not been paid, to recover from the recipients.

The second case is that of In re Hatch (3). In that case the court had to consider a deed made in 1885 under which a husband covenanted to pay to his wife 200l. per annum during her life. The husband died in 1907, having by his will bequeathed his residuary estate to his executors and trustees, upon certain trusts in favour of his four sons, one of whom subsequently died, having bequeathed his one-fourth share to the wife absolutely. The husband during his life-time, and his executors and trustees after his death, had paid the wife's annuity in full without deducting income tax. It was held that

(1) 4 Ch. D. 394.

(2) Ibid. 392.

(3) [1919] 1 Ch. 351.

on the true construction of the deed, the wife's annuity was payable subject to, and not free from, income tax, and that past over-payments in respect of income tax having been made under a mistake of law were not recoverable as a debt from the wife, and could not be deducted either from future payments of the annuity or from the wife's share in the residuary estate of the husband. Sargant J. (as he then was), said(1): "It is said that the annuitant having received out of the residuary estate of the testator a larger payment than she was entitled to as a creditor, is not entitled to receive any further part of that estate until that estate has been recouped the amount of such overpayments out of the share to which the annuitant has become beneficially entitled. That would no doubt be so if the overpayments had been made under a mistake of fact, since in that case the estate would be a creditor of the annuitant; but here the estate is not a creditor of the annuitant because the mistake is one of law, and what is sought is to set off against the beneficial interest of the annuitant in the estate something short of a debt - something which never was a debt owing by her, and cannot therefore be made available for the purpose of reducing the amount payable to her in respect of her beneficial interest. Assume for a moment that by a mistake of law the annuitant as a creditor had been paid too little so that the residuary legatees had received too much, would it be open to the annuitant to stop the distribution of the estate until the sums by which the residuary legatees had been overpaid had been deducted? To ask that question is, in my opinion, to answer it. The fact is that the payment having been made under a mistake of law the parties are left as they are without any resultant rights."

The basis of this decision is that in the case of payment of money under a mistake of fact, recoupment could have been ordered, because in that case the estate would have been a creditor of the annuitant; but that the mistake being one of construction, and therefore, one of law, the relationship of debtor and creditor between the annuitant and the estate could not be implied, and therefore, no debt could be implied in respect of which recoupment could be ordered. The claim was treated as one which, if it were to achieve success, must fulfil the conditions required for the successful prosecution of a claim for money had and received at common law, or the analogous

(1) [1919] 1 Ch. 351, 356.

claim entertained in equity, an essential condition of which was, of course, that the money in respect of which recoupment was sought should have been paid under a mistake of fact. Sargant J. rejected the contention by Mr. Stafford Crossman (as he then was)(1), that there was an equity, arising out of the circumstances existing at the date of the testator's death entitling the trustees to recoup to the estate the amount of the over-payments - though made under a mistake of law, and not constituting a legal debt - out of the share to which the annuitant became beneficially entitled.

This case, therefore, strongly militates against the existence of the principle for which the plaintiffs contend, unless there be any foundation for their submission that, as regards the quality of the mistake, cases of misconstruction of deeds and contracts are to be distinguished from cases of misconstruction of wills in the consideration of claims based on more money demands. I am unable to see any distinction in principle, and, in my view, the weight of authority is directly against the existence of any such distinction. I need only refer again to Hilliard v. Fulford (2), and Rogers v. Ingham (3).

The third case is In re Blake (4). The facts, as they appear from the headnote, were as follows: "The suppliant on a petition of right claimed to be entitled to the estate of an intestate who died on September 23, 1876. The petition stated that the suppliant was the legal personal representative of the grandchild of a paternal aunt of the intestate who died in 1886; that by an order dated June 23, 1883, it was declared that Queen Victoria was in right of her Royal Prerogative entitled to the intestate's personal estate, that it was ordered that the residue be paid by the Treasury Solicitor to such persons as Her Majesty or the Lords Commissioners of the Treasury should direct; that, pursuant to that order, the residue was transferred to the Paymaster-General; and that, at the date of the petition, the money, stocks and funds in question formed part of the Consolidated Fund and were held in trust for the intestate's next of kin. The petition submitted that an inquiry ought to be directed to ascertain who were the persons entitled to the estate and to what extent, and that the amount should be paid over to them. The Crown by demurrer pleaded that the claim was barred by the Limitation Act, 1623, and that the petition was bad in substance and in

(1) [1919] 1 Ch. 351, 355.

(2) 4 Ch. D. 389.

(3) 3 Ch. D. 351.

(4) [1932] 1 Ch. 54.

law on the ground that, on the facts therein alleged, no part of the money, stocks and funds constituting or representing the personal estate of the intestate, or forming part of the Consolidated Fund, was held in trust for the next of kin: Held, that the Crown succeeded on the point taken by the demurrer and that the petition must be dismissed."

The suppliant's case, as appears from the argument of Mr. Vaisey (as he then was)(1), was rested upon a right to follow the residue into the Consolidated Fund (and for the purpose of considering the extent of the doctrine of following assets I shall have occasion to return to this case later) which, if established, would, according to the contention on behalf of the suppliant, have avoided the application of the Statutes of Limitation. Maugham J. (as he then was), having discussed the nature of the Consolidated Fund(2), disposed of the suppliant's claim to follow the residue into that fund in these words: "In these circumstances it seems to be clear that (for the present purpose) the petition ought to be treated in the same way as an equitable claim brought by the next of kin of an intestate against a subject who has wrongly received part of the in testate's estate, pursuant to an order of the court and without any notice of the plaintiff's title."

On the previous page there is a passage, which throws much light on the question which I am considering. Referring to the Intestates Act, 1884, Maugham J. said: "Having regard to the plain distinction between the language used in s. 2 and that used in s. 3, it must, I think, be evident that where the Crown is being sued the actions contemplated by the latter section are actions against a subject to whom the administrator has wrongly paid part of the personal estate of the intestate. Such an action might have different forms. An action in the Chancery Division brought by the next of kin against a person to whom the administrator had wrongly paid part of the personal estate of the intestate under a mistake of fact (not joining the administrator and seeking administration) would be in the nature of a common law action for money had and received, and the court, acting on the analogy of the Statute of James I. (21 Jac. 1, c. 16) would hold the claim to be barred after the lapse of six years from the date of payment: see In re Robinson (3), where the law is elaborately explained by Warrington J., and In re Mason (4). A common law action

(1) [1935] 1 Ch. 54, 57.

(2) Ibid. 61.

(3) [1911] 1 Ch. 502.

(4) [1928] Ch. 385.

of the same character, assuming that such an action would lie, would also be barred by the same statute after the expiration of six years from the date of payment; Baker v. Courage & Co. (1). On the other hand there is no doubt that in a proper case the next of kin might bring an action in the Chancery Division to follow the trust property if the defendant to whom the administrator had paid it were still in possession of it."

Now, it is quite true, as was emphasized by Mr. Pascoe Hayward, that the only question decided was that the suppliant's claim was barred by lapse of time; but I am entitled, and indeed, bound, to have regard to the reasoning by which that result was arrived at. It is worthy of remark that the principle for which the plaintiffs contend, not depending upon the existence of any mistake, was not adumbrated by any of the learned counsel engaged in the case, either for the purpose of asserting or demolishing the principle. Nor is the existence of the principle referred to by the learned judge. As I read his judgment, Maugham J. (as he then was) was postulating that apart from any right to follow assets, if capable of being traced, the only other remedy open to the next of kin of a deceased person making a money demand in respect of money or property paid or transferred to the wrong person, is by a claim for money had and received at common law, or by an analogous claim in equity.

Upon this review of the authorities, I have come to the conclusion that the principle for which the plaintiffs contend is unsupported by the authorities, is against the weight of the authorities, and, as a head of equity, does not exist.

In my judgment, the authorities establish that so far as a mere money demand is concerned (and I am, as regards this part of the matter, dealing only with a money demand) where the executor or administrator has paid money or transferred property part of the estate of the deceased to a person not entitled thereto in such circumstances as not to make the recipient an express trustee, the only remedy open to the legatee or next of kin rightfully entitled against the recipient is either to pursue a common law claim for money had and received in the name of the executor or administrator, or to pursue in equity a claim analogous to the common law action for money had and received, in which it would be unnecessary to join the executor or administrator as plaintiff. In either case,

(1) [1910] 1 K. B. 56.

however, as I have shown, it would be essential to demonstrate that the money was paid under a mistake of fact and not a mistake of law, a mistake in construing a will being regarded for this purpose as a mistake of law.

There are, of course, cases in which equity, in the exercise of its remedial jurisdiction, will intervene to grant relief such as rescission, which may involve the repayment of money, and for the purpose of granting such relief will not treat as fatal a mistake of law. I am not concerned to state the ambit of this jurisdiction. It is sufficient to say that this case, being a claim based on a mere money demand, is outside that class of case. In my judgment, the words of James L.J. in Rogers v. Ingham (1), which I have already quoted, and which I will again repeat, namely: "I have no doubt that there are some cases which have been relied on, in which this court has not adhered strictly to the rule that a mistake in law is not always incapable of being remedied in this court; but relief has never been given in the case of a simple money demand by one person against another, there being between those two persons no fiduciary relation whatever, and no equity to supervene by reason of the conduct of either of the parties" - are as true to-day as they were when spoken in 1876, and the subsequent authorities only serve to emphasize their correctness.

The next point advanced on behalf of the plaintiffs was that upon the undisputed facts, to which I have already referred, they were entitled to follow the moneys paid by the executors to the respective defendant institutions into the hands of those institutions; and that, as in each case the money received had been paid into a banking account kept by the recipient with its bankers, the plaintiffs, upon the principles laid down in In re Hallett's Estate (2), were entitled to trace the money into the banking account, and also out of the account; and further, that where, upon such tracing out of the account, assets could be discovered in the hands of the recipient, representing wholly or in part the application of the money so received, the plaintiffs were entitled to an equitable charge upon such assets to secure the amount of the money so traced into the assets.

Now, for the purposes of the argument on this part of the case, the plaintiffs' counsel admitted that upon the receipt by the defendant institutions respectively of the payments made to them by the executors, the defendant institutions became neither trustees, nor clothed with any fiduciary character, and

(1) 3 Ch. D. 351, 355.

(2) (1879) 13 Ch. D. 696.

that this position obtained until the receipt in October or November, 1939, by the respective defendant institutions of the warning letters from Mr. Wintle, to which I have referred earlier in this judgment. The plaintiffs' counsel were clearly constrained to make this admission, in view of their admission upon their second point, namely, that they could not maintain in this court that any of the defendant institutions took with notice of the trust in favour of the plaintiffs.

In view of this admission, it becomes desirable to advert shortly to the right of following an asset at common law, and to the equitable doctrine of tracing (which is more extensive in its scope than the common law right) and to the principles upon which the respective rights are based.

At common law there is a right in the owner of an asset, who is deprived of the possession thereof, to follow that asset into whosoever hands it may come, and, notwithstanding that it may change its form, so long as he retains the property in the asset in its original or converted form; Miller v. Race (1), and Banque Belge Pour L'Etranger v. Hambrouck (2); and so long as the means of identifying the asset (in its original or converted form) continue to exist. The right is essentially a right in rem, and the difficulty which is usually encountered is the difficulty of continued identification, where the asset sought to be followed is money, or has at some stage of the chain of events been converted into money. As Lord Haldane L.C. said in Sinclair v. Brougham (3): "In most cases money cannot be followed. When sovereigns or bank notes are paid over as currency, so far as the payer is concerned, they cease ipso facto to be the subjects of specific title as chattels. If a sovereign or bank note be offered in payment it is, under ordinary circumstances, no part of the duty of the person receiving it to inquire into title. The reason of this is that chattels of such a kind form part of what the law recognizes as currency, and treats as passing from hand to hand in point, not merely of possession, but of property. It would cause great inconvenience to commerce if in this class of chattel an exception were not made to the general requirement of the law as to title." However, as Lord Haldane L.C., proceeds to show, the exception is not extended beyond the limits which necessity imposes.

In Taylor v. Plumer (4), Lord Ellenborough C.J., said:

(1) (1758) 1 Burr. 452.

(2) [1921] 1 K. B. 321, 329.

(3) [1914] A. C. 398, 418.

(4) (1815) 3 M. & S. 562, 575.

"It makes no difference in reason or law into what other form, different from the original, the change may have been made, whether it be into that of promissory notes for the security of the money which was produced by the sale of the goods of the principal, as in Scott v. Surman (1) or into other merchandize, as in Whitecomb v. Jacob (2), for the product of or substitute for the original thing still follows the nature of the thing itself, as long as it can be ascertained to be such, and the right only ceases when the means of ascertainment fail, which is the case when the subject is turned into money, and mixed and confounded in a general mass of the same description. The difficulty which arises in such a case is a difficulty of fact and not of law, and the dictum that money has no ear mark must be understood in the same way, i.e., as predicated only of an undivided and undistinguishable mass of current money. But money in a bag, or otherwise kept apart from other money, guineas, or other coin marked (if the fact were so) for the purpose of being distinguished, are so far ear marked as to fall within the rule on this subject, which applies to every other description of personal property whilst it remains (as the property in question did), in the hands of the factor, or his general legal representatives."

In commenting on this passage, Lord Haldane L.C., in Sinclair v. Brougham (3) said: "Lord Ellenborough C.J. laid down, as a limit to this proposition, that if the money had become incapable of being traced, as, for instance, when it had been paid into the broker's general account with his banker, the principal had no remedy excepting to prove as a creditor for money had and received. The explanation was, of course, that a relation of debtor and creditor had arisen between the banker and his client, the broker, which precluded the notion of following the money."

The last sentence which I have read, if taken literally, would appear to support the conclusion that the payment of money by a holder thereof into his banking account in any circumstances would destroy the right of the true owner to follow the money at common law. I do not, with respect, think that Lord Haldane L.C., intended his words to have such a far reaching effect, and I do not think that he intended them to have the effect of denying to the true owner the right to follow his money, when it has been paid by the person against whom it is

(1) (1742) Willes, 400.

(2) (1710) Salk. 160.

(3) [1914] A. C. 398, 419.

sought to follow it, into a separate account at his bankers into which no other moneys are paid. It is true that the result of such payment in is, as regards that money, to create the relationship of debtor and creditor, and to substitute for the money a chose in action, but there has been "no mixing and confounding of the money in a general mass of the same description," to use the words of Lord Ellenborough C.J.

That that is the true view is, I think, borne out by the language of Lord Ellenborough C.J. in the passage from Taylor v. Plumer (1), which I have already quoted, and from the judgments of the Court of Appeal in Banque Belge Pour L'Etranger v. Hambrouck particularly that of Bankes L.J.(2), and that of Atkin L.J.(3).

I therefore hold that where a person, other than the true owner thereof, pays money into an account at his bank, and does not mix with that money any other money, either his own, or that of any other person, the true owner of the money can at common law follow it into that account, and further can follow it out of the account into any asset or assets which can be shown to have been purchased wholly with it.

The common law right of following property depends in no degree upon the existence of any fiduciary relationship. This is conclusively demonstrated by Lord Haldane L.C. in Sinclair v. Brougham (4), where he says: "My Lords, it is, in my opinion, impossible to confine the right at law to follow to cases where there was a fiduciary relationship. The principle appears to me to cover all cases where the property in the money has not passed, and the money itself can be earmarked in the hands of the person who has wrongfully obtained it. A person standing in a fiduciary relation may be in this position, but it is not because of his trust or fiduciary duty. The common law, which we are now considering, did not take cognizance of such duties. It looked simply to the question whether the property had passed, and if it had not, for instance, where no relationship of debtor and creditor had intervened, the money could be followed, notwithstanding its normal character as currency, provided it could be earmarked or traced into assets acquired with it. And this appears to me to be, or ground of principle, as true of money paid under mistake of fact or on an ultra vires contract, under which no property could pass or relation of

(1) 3 M. & S. 562.

(2) [1921] 1 K. B. 321, 328.

(3) Ibid. 335.

(4) [1914] A. C. 398, 420.

debtor be constituted, as it is true in the case of a broker or bailee."

The common law right of following thus had the advantage that the person seeking to exercise it need not assert and prove any fiduciary relationship; but at the same time it had the disadvantage that whenever the identity of the res ceased in fact the remedy was gone. In the case of money, as I have already shown, whenever money, the res, is mixed with other money, the identity of the res is gone and the right to follow is at an end, a result which led Lord Haldane L.C., to say: "In most cases money cannot be followed"(1). It will thus be seen that as regards money the common law right of following property is distinctly limited in scope.

It was because of this limitation of the scope of the common law right that equity - which, as pointed out by Lord Haldane L.C. had so far exercised a concurrent remedy based upon trust - gave a further remedy, namely, what is conveniently called a right to trace. For the purposes of this case it is essential, for reasons which will appear later in this judgment, to have clearly in mind not only what is the nature and extent of the right of tracing in equity, but also, and indeed primarily, what are the principles upon which that right is rested.

The leading case on this matter is In re Hallett's Estate (2) to which I must refer in some little detail. The principles enunciated in this case are frequently referred to as the rule in Hallett's case, but it is important to observe at the outset that two distinct points emerge from the case: First, that in certain circumstances, which I shall deal with, money which has been paid into a banking account, and there mixed with other money, can be followed into that account notwithstanding that mixing; and, secondly, after the entry into the account has been made, how the account is to be unravelled for the purpose of tracing the money through and out of the account.

The first of this two points is dealt with under the heading of "Claim of Mrs. Cotterill"(3). Mr. Hallett, a solicitor, held certain bonds on behalf of Mrs. Cotterill, a client of his, and therefore stood in a fiduciary position towards her. He improperly sold these bonds and put the money, the proceeds of such sale, to his general account at his bankers. The money remained at his bankers mixed with his own money at the time

(1) [1914] A. C. 398, 420,

(2) 13 Ch. D. 696.

(3) Ibid. 707.

of his death - that is, he had not drawn out that money from his bankers. In that position of matters, Mrs. Cotterill claimed to be entitled to receive the proceeds, or the amount of the proceeds, of the bonds out of the money in the hands of Mr. Hallett's bankers at the time of his death, and the claim was allowed.

The basis upon which the claim was allowed, involving as it did entering the mixed account, was that Mr. Hallett stood in a fiduciary position towards Mrs. Cotterill. Sir George Jessel M.R., said(1): "The modern doctrine of equity as regards property disposed of by persons in a fiduciary position is a very clear and well established doctrine. You can, if the sale was rightful, take the proceeds of the sale, if you can identify them. If the sale was wrongful, you can still take the proceeds of the sale, in a sense adopting the sale for the purpose of taking the proceeds, if you can identify them. There is no distinction, therefore, between a rightful and a wrongful disposition of the property, so far as regards the right of the beneficial owner to follow the proceeds. But it very often happens that you cannot identify the proceeds. The proceeds may have been invested together with money belonging to the person in a fiduciary position, in a purchase. He may have bought land with it, for instance, or he may have bought chattels with it. Now, what is the position of the beneficial owner as regards such purchases? I will, first of all, take his position when the purchase is clearly made with what I will call, for shortness, the trust money, although it is not confined, as I will show presently, to express trusts. In that case, according to the now well established doctrine of equity the beneficial owner has a right to elect either to take the property purchased, or to hold it as a security for the amount of the trust money laid out in the purchase; or, as we generally express it, he is entitled at his election either to take the property, or to have a charge on the property for the amount of the trust money. But in the second case, where a trustee has mixed the money with his own, there is this distinction, that the cestui que trust, or beneficial owner, can no longer elect to take the property, because it is no longer bought with the trust money simply and purely, but with a mixed fund. He is, however, still entitled to a charge on the property purchased, for the amount of the trust money laid out in the purchase; and that charge is quite

(1) 13 Ch. D. 696, 708.

independent of the fact of the amount laid out by the trustee. The moment you get a substantial portion of it furnished by the trustee, using the word 'trustee' in the sense I have mentioned, as including all persons in a fiduciary relation, the right to the charge follows. That is the modern doctrine of equity."

Sir George Jessel M.R., then dealt with the suggestion that there was a distinction in this regard between "an express trustee, or an agent or a bailee, or a collector of rents, or anybody else in a fiduciary position"(1), and stated in emphatic terms that there was no such distinction. He then concluded(2): "Therefore the moment you establish the fiduciary position, the modern rules of equity, as regards following trust money, apply."

Later in his judgment, the Master of the Rolls quotes from the judgment of Wood V.-C., in Frith v. Cartland (3), where the learned Vice-Chancellor says(4): "The guiding principle is, that a trustee cannot assert a title of his own to trust property. If he destroys a trust fund by dissipating it altogether, there remains nothing to be the subject of a trust. But so long as the trust property can be traced and followed into other property into which it has been converted, that remains subject to the trust. A second principle is, that if a man mixes trust funds with his own, the whole will be treated as the trust property, except so far as he may be able to distinguish what is his own."

Sir George Jessel M.R. adds: "that is that the trust property comes first." Finally, after reviewing the authorities, the aster of the Rolls says(5): "I think after those authorities it must now be considered settled that there is no distinction, and never was a distinction, between a person occupying one fiduciary position or another fiduciary position as to the right of the beneficial owner to follow the trust fund." Both Baggallay L.J. and Thesiger L.J., in agreeing with the conclusion of Sir George Jessel M.R., based their judgments upon the existence of the fiduciary duty owed by Mr. Hallett to Mrs. Cotterill.

Pausing here, it appears to me to follow from a perusal of the judgments in In re Hallett's Estate (1) on the claim of Mrs. Cotterill that, so far as the authority of that case goes, the

(1) 13 Ch. D. 696, 709.

(2) Ibid. 710.

(3) (1865) 2 H. & M. 417, 420.

(4) 13 Ch. D. 696, 719.

(5) Ibid. 720.

equitable doctrine of allowing tracing into a mixed mass, particularly into a banking account where the tracer's money has been mixed with other money, is rested upon the existence of a fiduciary relationship between the person into whose banking account the money has been paid and the true owner; that the existence of that fiduciary relationship is a condition precedent to entering the banking account where the moneys have been mixed; and, therefore, that where that fiduciary relationship does not exist, there is no right in equity to trace into the mixed account. In other words, it is the existence of the fiduciary relationship which enables equity to give that further remedy to which Lord Haldane L.C. referred in Sinclair v. Brougham (1).

The second point, which was decided in In re Hallett's Estate (2), arose in this way: Mr. Hallett, being the trustee of some bonds, improperly sold them, and by his direction the proceeds were paid to his credit at his bankers and there mixed with moneys belonging to himself in the same banking account; and he also drew by ordinary cheques moneys from the banking account which he used for his own purposes. At his death in 1878 there was more money to the credit of the account than the sum of trust moneys paid into it; but if, applying the rule in Clayton's case(3), every payment made after the payment in of the trust moneys were applied to the first items on the credit side in order of date, a large portion of the trust moneys would have been paid out. The question was whether or not, in these circumstances, the moneys drawn out by Mr. Hallett, after the payment in of the trust moneys, were to be treated as the repayment of his own moneys, or whether they were to be treated as appropriated so as to diminish the amount applicable to the trust funds.

Sir George Jessel M.R., first considered the matter on principle and observed(1): "Now, first upon principle, nothing can be better settled, either in our own law, or, I suppose, the law of all civilized countries, than this, that where a man does an act which may be rightfully performed, he cannot say that act was intentionally and in fact done wrongly." Having then given a series of examples, he observes: "That is the universal law." He then proceeds(4): "When he came to apply that principle to the case of a trustee who has blended trust moneys with his own, it seems to me

(1) [1914] A. C. 398, 420.

(2) 13 Ch. D. 696.

(3) (1816) 1 Mer. 572.

(4) 13 Ch. D. 696, 727.

perfectly plain that he cannot be heard to say that he took away the trust money when he had a right to take away his own money."

Having dealt with what he describes as the simplest case of the mingling of trust money in a bag with the trustee's own, he proceeds(1): "What difference does it make if, instead of being in a bag, he deposits it with his banker, and then pays in other money of his own, and draws out some money for his own purposes? Could he say that he had actually drawn out anything but his own money? His money was there, and he had a right to draw it out, and why should the natural act of simply drawing out the money be attributed to anything except to his ownership of money which was at his bankers?"

Sir George Jessel M.R., then proceeds in the succeeding paragraph to demonstrate that, wherever the fiduciary position exists, then in unravelling the banking account where the trust and other moneys have been mixed, the rule in Clayton's case(2), which is a rule of convenience, based upon a presumed intention, must give way to the application of the principle in respect of which I have quoted him. His language is as follows(3): "It is said, no doubt, that according to the modern theory of banking, the deposit banker is a debtor for the money. So he is, and not a trustee in the strict sense of the word. At the same time one must recollect that the position of a deposit banker is different from that of an ordinary debtor. Still, he is for some purposes a debtor, and it is said if a debt of this kind is paid by a banker, although the total balance is the amount owing by the banker, yet considering the repayments and the sums paid in by the depositor, you attribute the first sum drawn out to the first sum paid in. That was a rule first established by Sir William Grant in Clayton's case(2); a very convenient rule, and I have nothing to say against it unless there is evidence either of agreement to the contrary or of circumstances from which a contrary intention must be presumed, and then, of course, that which is a mere presumption of law gives way to those other considerations. Therefore, it does appear to me there is nothing in the world laid down by Sir William Grant in Clayton's case(2), or in the numerous cases which follow it, which in the slightest degree affects the principle, which I consider to be clearly established."

(1) 13 Ch. D. 696, 727.

(2) 1 Mer. 572.

(3) 13 Ch. D. 728.

Having dealt with a difficulty with which Fry J. supposed himself to be faced by the decision of the Court of Appeal in Pennell v. Deffell (1), Sir George Jessel M.R. said(2): "No human being ever gave credit, even beyond that theory, that he should not only misappropriate trust moneys to increase his assets, but that he should pay the trust moneys so misappropriated to his own banking account with his own moneys, and draw out after that a larger sum than the first sums paid in for the trust moneys."

Baggallay L.J., based his judgment upon the same considerations. In the course of his judgment, he said(3): "But, dealing with the decision of the Lords Justices in Pennell v. Deffell (1), as I find it reported, I cannot regard it as satisfactory, if it is to be considered as establishing as a general proposition that in all such cases as that then under their consideration, the presumption of an honest intention on the part of the trustee is to be altogether disregarded, however favourable to such a presumption the circumstances of any particular case may be, and that the rule of appropriating in strict order of date the drawings out to the payments in is alone to be applied. On the contrary, I entertain a very decided opinion that in cases like Pennell v. Deffell (1) or in such as that which is the subject of the present appeal, full effect should be given to the principle of attributing the honest intention whenever the circumstances of the case admit of such a presumption. It may, of course, happen that, through the acts of a trustee whether wilfully dishonest or not, the ultimate balance may not be sufficient to meet the full amounts of all the trust moneys which may have been paid into a blended banking account, and the question then raised may be as to the various claims in respect of distinct trusts; in such a case the strict application of the general rule of appropriating in order of date the drawings out to the payments in may, and probably would, be correct. But in a case of another class, in which, as in that under consideration, the trustee has paid in trust moneys to the credit of his private account, and in his subsequent dealings with that account for his private purposes has never reduced his balance below the amount of the trust moneys so paid in, it is, to my mind, difficult to attribute to the trustee any other intention than that of appropriating

(1) (1853) 4 De G. M. & G. 372.

(2) 13 Ch. D. 696, 730.

(3) Ibid. 742.

his drawings to his own private moneys, so as to leave the trust moneys intact."

Thesiger L.J. dissented from the majority, taking the view that the Court of Appeal was bound by the previous decision of that court in Pennell v. Deffell (1).

Now the effect of this second part of the judgment in In re Hallett's Estate (2) is that, once the banking account into which the money sought to be traced has been paid has been entered, the application of the rule in Clayton's case(3) is displaced for the same reason as that, by reason of the existence of which equity allows the account to be entered, namely, the fiduciary relationship between the person who has paid in the money sought to be traced and the true owner. The fiduciary position is treated as a circumstance which displaces the presumed intention upon which the application of the rule in Clayton's case(3) depends: because as between the trustee or the person owing a fiduciary duty upon the one hand, and the beneficiary or person owed the fiduciary duty upon the other hand, it must be presumed that the trustee or fiduciary agent intended to act honestly, and effect can only be given to that intention by treating drawings out of the account, as drawings by the trustee or fiduciary agent of his own moneys. It may well be, as is suggested by Baggallay L.J., that the rule in Clayton's case(3) will obtain as between respective beneficiaries whose moneys have been mixed by their trustee in one banking account.

Now it is to be observed that the doctrine is artificial in that it is based upon a presumed intention, namely, that the trustee or fiduciary agent intended to act honestly, when in most cases, of which In re Hallett (2) itself forms an example, the contrary is the fact. In the usual case there is a deficiency; the competition is between the beneficiary and the creditors of the trustee or fiduciary agent; and the position has been brought about by the improper and generally dishonest motive of the trustee or fiduciary agent. This improper or dishonest motive neither he nor those who claim under him are allowed to set up; and it is presumed (usually quite contrary to the fact) that all along he was filled with a proper and honest intent.

Here I may observe in passing that I place no weight on the circumstance upon which the plaintiffs' counsel relied strongly: namely, that all the reported cases relating to tracing deal with

(1) 4 De G. M. & G. 372.

(2) 13 Ch. D. 696.

(3) 1 Mer. 572.

a deficiency, because as was pointed out by Sir Richard Kindersley V.-C., in Hopper v. Conyers (1), the test must always be as between the trustee or fiduciary agent and the person seeking to follow or trace. The creditors of the trustee or fiduciary agent cannot stand in a better position than he could.

I have been at pains to emphasize the artfiicial element in the equitable doctrine of tracing, because, in my view, it serves to underline the truth that in the evolution of this doctrine equity did no more, and at the same time did no less, than have recourse to its age-old expedient of fastening upon the conscience of the person against whom it intended to extend the remedy.

The decision of In re Hallett's Estate (2), if I may so put it, reeks of trust and fiduciary relationship, and the two points, which emerge from the judgments and with which I have dealt above are, as I have shown, based by the express language of the court upon the existence of trust or fiduciary relationship.

Upon the doctrine of tracing in equity, as enunciated in In re Hallett's Estate (2), certain refinements have been engrafted which, however, in no way affect the principles upon which the decision is rested, but which indeed are wholly consistent with the logical working out of those principles.

In In re Oatway (3), it was held that where a trustee paid trust money into his banking account, whereby it became mixed with his own money, and out of moneys drawn from the account purchased an investment in his own name, but subsequently applied the balance to his own purposes, his representatives cannot successfully maintain that the investment was purchased out of the trustee's own money, and that what has been spent, and can no longer be traced and recovered, was the money belonging to the trust.

In Roscoe (Bolton), Ld. v. Winder (4) it was held that payments into a general account cannot, without proof of express intention, be appropriated to the replacement of trust money which has been improperly mixed with that account and drawn out. In his judgment Sargant J. (as he then was) said(5): "In a case where the account into which the moneys are paid is the general trading account of the debtor on which he has been accustomed to draw both in the ordinary course and in breach of trust when there were trust funds standing to the credit of that account which were convenient for that purpose,

(1) (1866) L. R. 2 Eq. 549, 553.

(2) 13 Ch. D. 696.

(3) [1903] 2 Ch. 356.

(4) [1915] 1 Ch. 62.

(5) Ibid. 69.

I think it is impossible to attribute to him that by the mere payment into the account of further moneys, which, to a large extent, he subsequently used for purposes of his own, he intended to clothe those moneys with a trust in favour of the plaintiffs.

"Certainly, after having heard In re Hallett's Estate (1) cited over and over again, I should have thought that the general view of that decision was that it only applied to such an amount of the balance ultimately standing to the credit of the trustee as did not exceed the lowest balance of the account during the intervening period. That view has practically been taken, as far as I can make out, in the cases which have dealt with In re Hallett's Estate (1). In re Oatway (2), a decision of Joyce J., was cited to me in support of the plaintiff's case but I do not find anything in it to help them. All that Joyce J. did in that case was to say that, if part of the mixed moneys can be traced into a definite security, that security will not become freed from the charge in favour of the trust, but will, together with any residue of the mixed moneys, remain subject to that charge. I am sure that nothing which he said was intended to mean that the trust was imposed upon any property into which the original fund could not be traced."

It is significant to observe that the decision in the latter case was given after the decision of the House of Lords in Sinclair v. Brougham (3), to which I shall have to refer later in this judgment, and that Sargant J. neither showed any inclination to extend the doctrine of tracing as laid down in In re Hallett's Estate (1), nor regarded that doctrine as having been affected by the decision in Sinclair v. Brougham (3).

Many cases involving the equitable doctrine of tracing have come before the courts of equity since the decisions in In re Hallett (1) in 1879 and 1880, but (apart from the case of Sinclair v. Brougham (3)) I do not consider it necessary to refer to more than the authorities to which I have already referred. The difficulties which have arisen have not arisen upon any doubt as to the principles underlying the decisions in In re Hallett's Estate (1) but in the application of those principles to the facts of particular cases. One conclusion appears to me to be clear, namely, that, putting aside for the moment the case of Sinclair v. Brougham (3) there is no case in the books (and in this regard I do not omit from account the

(1) 13 Ch. D. 696.

(2) [1903] 2 Ch. 356.

(3) [1914] A. C. 398.

cases of Buckeridge v. Glasse (1) and Thompson v. Finch (2) from which it could be asserted that the equitable right of tracing is available against a person who, at the time of receiving the money sought to be traced, and which he has mixed with his own in his banking account, owed no fiduciary duty to the true owner: while on the other hand the whole weight of the authority of In re Hallett's Estate (3) and the cases which have followed it is without exception to the contrary.

It is no part of the defendants' case to dispute that, if a volunteer receives trust money or property without knowledge that it is subject to a trust but subsequently receives such notice and is still in possession of the trust money or property, he, being a volunteer, cannot maintain his title against those entitled under the trust. On the other hand, it is no part of the plaintiffs' case that the notice given to the defendant institutions by the respective warning letters could, in any sense, be related back to the respective dates of receipt by them of the moneys paid to them by the executors, or that the defendant institutions could be clothed with any fiduciary character prior to the receipt of the warning letters. I have, however, considered it necessary to examine at some length the decision in In re Hallett's Estate (3) because of the way in which the plaintiffs' case has been put.

Mr. Hayward and Mr. Fawell appeared to me to differ somewhat in the way they presented their arguments. As I understood him, Mr. Hayward's argument admitted the necessity of establishing an equity affecting the conscience of the proposed defendant, though I think his argument involved this, that it was unnecessary to demonstrate that the defendant's conscience was affected until after the machinery of tracing had been applied and worked out. He asserted a general equity arising first, because of the circumstance that money or other property of the proposed plaintiff, through no fault of his, had somehow got into the hands of the defendant, a volunteer, not clothed with any fiduciary character at the time of the receipt thereof; secondly, because, as a result, the defendant at the date of the claim might or might not hold an asset representing in whole or in part the money or other property of the plaintiff or some part of it; and thirdly, because if that should turn out to be the case, then the defendant was in possession of a superfluity which it would be against conscience to allow him to retain.

(1) (1840) Cr. & Ph. 126.

(2) (1856) 8 De G. M. & G. 560.

(3) 13 Ch. D. 696.

He therefore claimed that for the purpose of ascertaining whether or not that superfluity existed, the plaintiff should be entitled to have applied in his favour the machinery of tracing described in the second part of In re Hallett's Estate (1), without having to establish the presumed intention of the defendant upon the existence of which the reasoning in that case proceeded. That is, you enter the banking account and unravel it, not because you have shown that the defendant has a tender conscience, in which case your inquiry is directed to ascertaining how much he still retains against his conscience, but in order to see whether at the end of the inquiry it can be predicated of the defendant for the first time that he has a tender conscience and, if so, to what extent.

Mr. Fawell as I understood him, put the matter somewhat differently. He said that in all cases where property belonging to A has somehow got into the possession of B without any intention upon the part of A. to make a gift, the law gives a right to follow such property, so long as the property or the property into which it may have been converted can be identified. Whenever the right at law fails because of some change in the property which makes identification impossible, equity will assist. In so assisting to supplement the legal right to follow, equity acts in rem, and operates on the res and not on the conscience of the person in whose possession it is. I think the difference between the two ways of presenting the matter is more apparent than real; because Mr. Fawell's reasoning clearly involves this result, that, if at the end of the tracing, property belonging to A is found to be in the hands of B in the circumstances predicated, it would be against B's conscience to retain it.

If, therefore, I have rightly understood the arguments of the plaintiffs' counsel, they involve this: that the question of the defendants' conscience is not material at the start of the tracing, as a condition precedent to equity allowing the tracing to be undertaken, but, at the most, at the end of the inquiry, if as a result thereof a superfluity should be found in the defendants' hands.

They maintain that the right to the machinery of tracing for which they contend is supported by authority, or if not, is justified on principle, and, in so far as acceding to their contention would represent an extension of the equitable doctrine of tracing, that extension should be made.

(1) 13 Ch. D. 696.

I must therefore proceed to consider first whether the plaintiffs' counsel are right in their contention that the proposition for which they contend is supported by authority. Virtually speaking, the only authority upon which they rely is confined to one case, but one of the greatest importance, namely: the decision of the House of Lords in Sinclair v. Brougham (1). The plaintiffs contend that upon a true view, this case is authority for the proposition that the machinery of a tracing order can be applied to a case where the person, against whom the tracing order is sought, did not stand in a fiduciary relationship to the person seeking the order at the time of receipt of the property or money sought to be traced. The defendants, on the other hand, contend that, properly understood, the case of Sinclair v. Brougham (1) is no more than an application of the first point decided in In re Hallett's Estate (2), that is that it predicated, for the purpose of getting into the mixed mass of money dealt with in that case, that there was a fiduciary relationship, and that, in so far as there could be said to have been any departure from the strict application of the second part of the decision in In re Hallett's Estate (2), that departure lay in the decision to divide the mixed mass between the two competing sets of claimants in proportion to their respective contributions to what the mass represented, because the machinery for unravelling the mass laid down in the second part of the decision in In re Hallett's Estate (2) could not in the circumstances be applied. The immediate question, therefore, is which of these views is correct?

For this purpose I must embark on a detailed consideration of the facts in Sinclair v. Brougham (1) and of what was decided in that case.

The relevant facts were that a building society formed in 1851 and empowered by its rules to borrow to an unlimited extent started and developed a banking business. In 1911, the society was ordered to be wound up and questions of priority arose between the outside creditors, the unadvanced shareholders and the bank customers on current and deposit account (to whom I will refer as "the depositors"). The assets were insufficient for payment of all the claimants in full but were more than sufficient for payment of the outside creditors (who were subsequently paid by arrangement) and the shareholders. It was held that the power to borrow must be limited to borrowing for the proper objects of the society and that the carrying

(1) [1914] A.C. 398.

(2) 13 Ch. D. 696.

on of the banking business was ultra vires. Secondly, it was held that the depositors were not entitled to recover moneys paid by them on an ultra vires contract of loan on the footing of money had and received by the society to their use.

It was however, held thirdly - I read from the headnote(1) -: "Applying the principle of In re Hallett's Estate (2) that the assets remaining after payment of the outside creditors must be taken to represent in part moneys which the depositors could follow, as having been invalidly borrowed, and in part moneys which the society could follow, as having been wrongfully employed by its agents in the banking business, and (subject to any application by any individual depositor or shareholder with a view to tracing his own money into any particular asset, and to the costs of the liquidation) ought to be distributed pari passu between the depositors and the unadvanced shareholders according to the amounts respectively credited to them in the books of the society at the commencement of the winding-up."

Now, as I shall show, at the root of the decision lie the circumstances that, as the carrying on of the banking business was ultra vires the society, the directors of the society, and not the society itself, must be deemed to have carried on that business and the moneys constituting the mass in the hands of the liquidators must be deemed to represent moneys received from the society and the depositors by the directors; that the directors so receiving such moneys stood in a fiduciary relationship to the society and the depositors: that, in expending the moneys so received, the directors had acted wrongfully and in breach of trust: that they had done so to the knowledge of both the society and the depositors: and that, as between the society and the depositors, the equities were equal.

If this be a correct view of the matter, then it appears to me that so far as the first part of In re Hallett's Estate (2) is concerned, this case represents a strict application of the principle there enunciated for the purpose of effecting entry into the mass in the hands of the liquidator, and that the only departure (if it be one) from In re Hallett's Estate (2) occurs as regards the second point in the division of the mass between the two competing classes, because of the practical impossibility of tracing. The departure would appear to be more apparent than real, because if, as in my view was the position, it was a case of a fund held on behalf of two sets of beneficiaries, the

(1) [1914] A. C. 398.

(2) 13 Ch. D. 696.

machinery of tracing dealt with in the second part of In re Hallett's Estate (1) would not have been applicable, even if it could have applied. It appears to me, therefore, that the only relevance of In re Hallett's Estate (1) in Sinclair v. Brougham (2) was for the purpose of effecting entry into the mass.

Lord Haldane L.C. having dealt with the claim for money had and received proceeded as follows(3): "But while the common law gave the remedy I have stated, it gave no remedy when the money had been paid by the wrongdoer into his account with his banker, who simply owed him a debt, so that no money was or could be, in the contemplation of a court of law, earmarked. Here equity, which had so far exercised a concurrent jurisdiction based upon trust, gave a further remedy. The Court of Chancery could and would declare, even as against the general creditors of the wrongdoer, that there was what it called a charge on the banker's debt to the person whose money had been paid into the latter's bank account in favour of the person whose money it really was. And, as Jessel M.R. pointed out in Hallett's case(1), this equity was not confined to cases of trust in the strict sense, but applied at all events to every case where there was a fiduciary relationship. It was, as I think, merely an additional right, which could be enforced by the Court of Chancery in the exercise of its auxiliary jurisdiction, wherever money was held to belong in equity to the plaintiff. If so, subject to certain qualifications which I shall presently make, I see no reason why the remedy explained by Jessel M.R. in Hallett's case(1), of declaring a charge on the investment in a debt due from bankers on balance, or on any mass of money or securities with which the plaintiff's money had been mixed, should not apply in the case of a transaction that is ultra vires. The property was never converted into a debt, in equity at all events, and there has been throughout a resulting trust, not of an active character, but sufficient, in my opinion, to bring the transaction within the general principle."

The object of that passage was to lead to the conclusion that there was no reason why the remedy explained by Sir George Jessel M.R. in In re Hallett's Estate (1) of declaring a charge should not apply in an ultra vires transaction. That is, Lord Haldane L.C. was only seeking to apply a known principle

(1) 13 Ch. D. 696.

(2) [1914] A. C. 398.

(3) Ibid. 420.

of equity and not to extend such principle or to make a new head of equity. In referring to the principle, he refers to the condition upon which its applicability depends, namely, the existence of a fiduciary relationship, and underlines this aspect of the matter in the last sentence of the paragraph. He says(1): "there has been throughout a resulting trust." The word "throughout" is vital. There could not be a resulting trust, however dormant, over a period during which the recipient of the money sought to be traced was not, in any sense, a fiduciary agent.

Again, Lord Haldane said(2): "For the purpose of the question before us the really relevant part of the judgment in Hallett's case(3) is that which shows how the difficulty af following money into a debtor and creditor account like a banker's is got over in equity. The loan to the banker was regarded as an investment pro tanto of the principal's money, and the latter was treated as entitled to waive the breach of duty by his agent, and to claim the investment to the extent of the amount due to him as made on his behalf. The agent could not set up that any part of the money in the bank was his until he had made good his breach of duty, and in that sense there was a charge.

"In the present case the investment was not made in breach of a fiduciary duty on the part of the society, and it was actually made with the authority of the depositors. What was a material point in Hallett's case(3), therefore, does not occur here. No doubt it was ultra vires of the society to undertake to repay the money. But it was none the less intended that in consideration of giving such an undertaking the society should be entitled to deal with it freely as its own. The consideration failed and the depositors had the right to follow the money so far as invalidly borrowed into the assets in which it had been invested, whether these assets were mere debts due to the society or ordinary securities, but that was their only right."

It was sought to be argued that that passage was authority for the proposition that for the purpose of effecting entry into a banking account, the person seeking to trace need not show that the recipient of the money into whose account it was paid stood in any fiduciary relationship at the time of receipt or payment in. For myself I do not consider that any

(1) [1914] A. C. 398, 421.

(2) Ibid. 422.

(3) 13 Ch. D. 696.

such far reaching proposition can be deduced from this or any other passage in Lord Haldane's speech.

In the first of the two paragraphs which I have just read, Lord Haldane L.C. demonstrates conclusively that, in order to pray in aid the first rule in In re Hallett's Estate (1) for the purpose of following money into a banking account, it is necessary to show that the person into whose account the money was paid was a fiduciary agent. In the second paragraph what Lord Haldane L.C. is explaining is that both the society and the depositors were tracers. The society did not owe the depositors any fiduciary duty and in that sense the case was different from In re Hallett's Estate (1). None the less, it is not right to say that Sinclair v. Brougham (2) is not a case in which any question of fiduciary relationship was involved. As is pointed out by Lord Haldane L.C., in the passage on which I have commented, and again(3), and as I shall show, even more clearly and expressly by Lord Parker, as the business was ultra vires the society, it had to be regarded as carried on improperly by the directors, the agents of the society and necessarily fiduciary agents.

I am, therefore, unable to regard Lord Haldane L.C.'s speech in Sinclair v. Brougham (4) as authority supporting the plaintiffs' proposition to which I have already referred.

Lord Dunedin said this(5): "Now I think it is clear that all ideas of natural justice are against allowing A to keep the property of B, which has somehow got into A's possession without any intention on the part of B to make a gift to A." The plaintiffs' counsel relied very strongly upon this passage, and sought to put it forward as authority for their proposition that the receipt of the property of B by A, without any intention on the part of B to make a gift, constituted an equity in B entitling him to enter and investigate the banking account of A to discover whether A still retained the money or held an asset wholly or in part representing that money.

In my judgment to take this view would be to extract from the passage in question more than it contains. It is in my view essential to bear in mind the concrete problem to which Lord Dunedin was addressing himself, and which he states in these words(6): "What has happened is this. The directors of the society have taken the moneys of the shareholders

(1) 13 Ch. D. 696.

(2) [1914] A. C. 398, 421.

(3) Ibid. 425.

(4) Ibid. 410.

(5) Ibid. 431.

(6) Ibid. 438.

which they had a right to receive, and the moneys of the depositors which they had not, and mixed them so that they cannot be discriminated from each other, and have put them, so to speak, into the society's strong-box where the mixed mass is found by the liquidator."

It is clear from this passage that what Lord Dunedin was dealing with throughout his speech was a real superfluity existing in specie and not a mere superfluity in account. In the case before him, the facts established that the mass in the hands of the liquidator represented in fact the moneys of the depositors and the society. No question, therefore, such as that before me, arose for consideration in Sinclair v. Brougham (1), but it is to be observed that upon the footing of the statement of the facts by Lord Dunedin, which I have read, the fiduciary element was present, namely, the fiduciary duty owed by the directors to the society and the depositors, which would entitle either set of tracers to enter the mixed mass upon the authority of the first part of the rule in In re Hallett's Estate (2).

Again, I would observe that I can find no suggestion in the language used by Lord Dunedin to effect any extension of the equitable doctrine of tracing or to enunciate any new head of equity; or indeed to do anything more than to apply existing and well known principles to the particular facts before him.

It is true that Lord Dunedin said(3): "I have made these citations to show that other great systems of law have not been unable to solve the problem arising where the equity of restitution comes in contact with the doctrine of nullity of contract. Is English equity to retire defeated from the task which other systems of equity have conquered? Let us for a moment examine what the argument on the other side is. There being no contract, it is impossible, it is said, to have any obligation on the part of the society to restore what it has taken from the depositors. The only right of the depositors is a right to vindicate property; or, in other words, when you have a jus in re you can enforce it; but if the thing has so disappeared that a jus in re is no longer to be found (and this must practically always be so in the case of money), then your remedy is gone. The sole relief which equity can give is that if you can show that your money has paid a just debt, in that case you shall have action. This comes to this,

(1) [1914] A. C. 398, 410.

(2) 13 Ch. D. 696.

(3) [1914] A. C. 398, 435.

that having got hold of property which does not belong to you, if only you are wise or lucky enough to change its form you may enjoy the proceeds unmolested. Such a plea on the face of it seems only worthy of the Pharisee who shook himself free of his natural obligations by saying Corban. In the words of technical equity it is unconscionable."

The words "In the words of technical equity"(1) appear to me to supply the key to the whole passage. In the eye of equity (technical equity), it could only be unconscionable to retain the property if, after the application of the relevant rules of equity, the retention could still be said to be unconscionable. Now, if it be still true, as I think it is, that the application of the two rules in In re Hallett's Estate (2) depend upon the existence of a fiduciary relationship, it cannot be unconscionable in the eye of equity to retain money in circumstances where the identity of the money has in fact been lost, and where the rules of equity cannot be prayed in aid to preserve that identiy.

I think, therefore, that Mr. Andrew Clark was right in his submission that Lord Dunedin, in both the wide statements which I have read(3), was presupposing on the part of the recipient knowledge that the money belonged to some one else in equity, in other words, that there existed that fiduciary relationship which would admit the application of the rules in In re Hallett's Estate (2). Lord Dunedin nowhere sought to quarrel with or to cast doubt on those rules. He recognized the correctness of the first rule by his silence, and only referred to the case at all(4) to point out that on the facts before him the second part of In re Hallett's Estate (2) had no application.

I am therefore of opinion that the plaintiffs do not find support for their proposition in the speech of Lord Dunedin.

I now turn to the speech of Lord Parker. In the first place I desire to refer to certain passages, which in my judgment, establish beyond doubt that Lord Parker's reasoning proceeded on the basis that, on the facts of the case before him, the ultra vires business must be deemed to have been carried on by the directors who thus stood in a fiduciary relationship both to the depositors and to the society.

Lord Parker said(5): "Secondly it appears to be also well settled that the lender in an ultra vires loan transaction has a right to what is known as a tracing order. A company or

(1) [1914] A. C. 398, 436.

(2) 13 Ch. D. 696.

(3) [1914] A. C. 398, 433, 435.

(4) Ibid. 438.

(5) Ibid. 441.

other statutory association cannot by itself or through an agent be party to an ultra vires act. If its directors or agents affecting to act on its behalf borrow money, which it has no power to borrow, the money borrowed is in their hands the property of the lender. At law, therefore, the lender can recover the money, so long as he can identify it, and even if it has been employed in purchasing property, there may be cases in which, by ratifying, the action of those who have so employed it, he may recover the property purchased. Equity, however, treated the matter from a different standpoint. It considered that the relationship between the directors or agents and the lender was a fiduciary relationship, and that the money in their hands was for all practical purposes trust money. Starting from a personal equity, based on the consideration that it would be unconscionable for any one who could not plead purchase for value without notice to retain an advantage derived from the misapplication of trust money, it ended, as was so often the case, in creating what were in effect rights of property, though not recognized as such by the common law."

That means that the basis of the right of tracing in such a case is the wrongdoing of the fiduciary agents, which makes applicable the first part of the rule in In re Hallett's Estate (1).

After referring to In re Guardian Permanent Benefit Building Society (Grace-Calvert's case)(2), Lord Parker said(3): "No doubt at first sight it is difficult to be certain as to the principles of equity to which Sir George Jessel M.R. referred. But I think the difficulty may be solved by disentangling the equity itself from the directions by means of which the court endeavoured to give effect to it. The equity lay in this, that it would be unconscionable for the society to retain the amount by which its assets had been increased by, and in fact still represented the borrowed money. It would be inequitable for the society to take advantage of the misapplication by its agents of money belonging to others and held by them in a fiduciary capacity. In other words, it was the same equity as that on which a tracing order is based."

Lord Parker states the particular case before him in these words(4): "The case, therefore, presents itself in this way. Here is a mass of assets arising in the course of an ultra vires business carried on by the directors and agents of the society.

(1) 13 Ch. D. 696.

(2) (1882) 23 Ch. D. 440.

(3) [1914] A. C. 398, 440.

(4) Ibid. 448.

There are, on the other hand, liabilities, how, or for what purpose incurred, is not in evidence. No one claims any interest in the assets except the ultra vires lenders, the members of the society and the creditors, in respect of the liabilities to which I have referred. The ultra vires lenders and the members are willing that these liabilities and the costs of the liquidation, which are in effect costs of administering the fund, shall be first paid. If this is done, what is left may be taken to represent in part the moneys of the ultra vires lenders and in part the moneys of the society wrongfully employed in the business. The equities of the ultra vires lenders and of the society are equal, and it follows that the remainder of the assets ought to be divided between the ultra vires lenders and the society rateably, according to the capital amount contributed by such lenders and the society respectively. This mode of distribution gives effect to all the equities of the parties, and there is in it nothing necessarily inconsistent with the decision in the Grace-Calvert case(1), for there the business actually carried on was intra vires, and thus belonged to the' society, except in so far as the ultra vires lenders could establish any equitable claim. It depends solely on the fact that the assets for distribution being assets not of a legitimate but an ultra vires business are not the assets of the society, except in so far as they can substantiate some equity to them, and that such equity as they have can arise only from an application of the same principles to which the ultra vires lenders are themselves entitled to have recourse."

These passages also appear to me to establish that Lord Parker treated the matter as one in which, because of the fiduciary position of the directors who carried on the ultra vires business, it was open both to the depositors and to the society to make entry into the mass of assets in the hands of the liquidator by invoking the first part of the rule in In re Hallett's Estate (2).

Having referred to these passages, I now turn to a most important passage from Lord Parker's speech which I must read in full(3). "The principle on which, and the extent to which, trust money can be followed in equity is discussed at length in In re Hallett's Estate (2) by Sir George Jessel M.R. He gives two instances. First, he supposes the case of property being

(1) 23 Ch. D. 440.

(2) 13 Ch. D. 696.

(3) [1914] A. C. 398, 442.

purchased by means of the trust money alone. In such a case the beneficiary may either take the property itself or claim a lien on it for the amount of the money expended in the purchase. Secondly, he supposes the case of the purchase having been made partly with the trust money and partly with money of the trustee. In such a case the beneficiary can only claim a charge on the property for the amount of the trust money expended in the purchase. The trustee is precluded by his own misconduct from asserting any interest in the property until such amount has been refunded. By the actual decision in the case, this principle was held applicable when the trust money had been paid into the trustee's banking account. I will add two further illustrations which have some bearing on the present case. Suppose the property is acquired by means of money, part of which belongs to one owner and part to another, the purchaser being in a fiduciary relationship to both. Clearly each owner has an equal equity. Each is entitled to a charge on the property for his own money, and neither can claim priority over the other. It follows that their charges must rank pari passu according to their respective amounts. Further, I think that as against the fiduciary agent they could by agreement claim to take the property itself, in which case they would become tenants in common in shares proportioned to amounts for which either could claim a charge. Suppose again, that the fiduciary agent parts with the money to a third party who cannot plead purchase for value without notice, and that the third party invests it with money of his own in the purchase of property. If the third party had notice that the money was held in a fiduciary capacity, he would be in exactly the same position as the fiduciary agent, and could not, therefore, assert any interest in the property until the money misapplied had been refunded. But if he had no such notice this would not be the case. There would, on his part, be no misconduct at all. On the other hand, I cannot at present see why he should have any priority as against the property over the owner of the money which had, in fact, been misapplied."

This passage, particularly the latter part, was strongly relied on both by the plaintiffs and the defendants. In my judgment, this paragraph, when carefully analysed and considered in its context, admits of no ambiguity.

In the first place it is clear that Lord Parker was not seeking

in this passage to make any exhaustive statement of the principle on which, and the extent to which, trust money can be followed in equity. In the immediately preceding paragraph which I have already read, he is confining himself to the impact of equity upon an ultra vires transaction of lending, leading up to the conclusion that equity considered that the relationship between the directors or agents and the lender was a fiduciary relationship, and that the money in their hands was for all practical purposes trust moneys.

He then contents himself with observing that the principle on which, and the extent to which, trust money can be followed in equity is discussed at length in In re Hallett's Estate (1) by Sir George Jessel M.R. Then he refers to two instances given by Sir George Jessel M.R. In both of those instances the existence of the fiduciary relationship at the time of dealing with the trust money is postulated.

Lord Parker then adds two illustrations of his own. The first is put forward in these words(2): "Suppose the property is acquired by means of money, part of which belongs to one owner and part to another, the purchaser being in a fiduciary relationship to both." That, in effect, was the case before him. In that case also the existence of the fiduciary relationship would enable either party to invoke the first rule in In re Hallett's Estate (1) and enter the mass, whether it consisted of specific property or a chose in action owed by his bankers to the person under the fiduciary duty, though when entry into the mass had been made, then, as between the two owners of the money, the equities would be equal.

His second illustration is introduced in these words(2): "Suppose, again, that the fiduciary agent parts with the money to a third party who cannot plead purchase for value without notice, and the third party invests it with money of his own in the purchase of property." It is, I think, important to consider the scope of that illustration. In the discussion of the elements of a principle or the extent of its application a hypothetical example is frequently of the greatest help, but only if its scope is clearly understood. In the illustrations which he gives, is Lord Parker postulating the mixing by the third party in his banking account of the money paid to him by the fiduciary agent with his own money before the investment is effected, or not?

Both views were urged before me. In favour of the view that

(1) 13 Ch. D. 696.

(2) [1914] A. C. 398, 442.

Lord Parker did postulate such mixing is the undoubted circumstance that in practice the normal course which would be followed by the recipient, particuarly if he took without notice of the trust, would be to pay the money into his banking account. Against this consideration, however, must be set these considerations, first, that Lord Parker's statement of his illustration does not in terms involve any such mixing: secondly, that it was unnecessary for the purposes of the case before him to consider the effect of such mixing; and thirdly, that the second variation of this second illustration militates strongly, and as I think, conclusively against any such postulate.

Having stated the illustration Lord Parker gives two variations of it. In the first place, he postulates that the third party receiving the money has notice that it was held in a fiduciary capacity. In such an event, it would clearly be immaterial whether or not the money was mixed by the third party with money of his own, because in the language of Lord Parker(1), "he would be in exactly the same position as the fiduciary agent and could not, therefore, assert any interest in the property until the money misapplied had been refunded"; that is that both parts of the rule in In re Hallett's Estate (2) would be applied against him. In the second place, Lord Parker says: "But if he had no such notice this would not be the case. There would on his part be no misconduct at all." That is, in such circumstances, he could not be deprived of the right to assert an interest in the property, except on the terms of first refunding the money received from the fiduciary agent. As between the third party and the true owner of the money paid by the fiduciary agent, the equities would be equal and for that reason Lord Parker concluded his observations; on this part of the matter with this sentence(1): "On the other hand, I cannot at present see why he should have any priority as against the property over the owner of the money which had, in fact, been misapplied."

If Lord Parker, as I think was the case, did not have in mind any mixing of the two sets of moneys in the banking account of the third party prior to the investment, then the whole matter is plain, and the illustration amounts to this, that, as regards the first variation, it is a simple case of the application of both parts of the rule in In re Hallett's Estate (2): while, as regards the second illustration, it shows that upon the third party in fact receiving notice that the money paid to him was

(1) [1914] A. C. 398, 443.

(2) 13 Ch. D. 696.

held in a fiduciary capacity and upon proof that he still possesses an asset in part representing that money, the true owner can effect entry into the asset, so to speak, but not upon the terms of having any priority over the third party.

If, on the other hand, it were to be predicated that the money received from the fiduciary agent was first mixed by the third party with his own before the investment was made, he not then knowing that it was held in a fiduciary capacity, it appears to me that the second illustration put forward by Lord Parker could not be regarded as a true illustration of the application of the rule in In re Hallett's Estate (1) but as being a statement of the law either in extension of or in addition to that rule. I am clear that in neither of the paragraphs(2) which I have been considering, nor in any other part of his speech did Lord Parker intend to do anything except apply the existing rules of equity, and certainly did not intend, by means of a hypothetical example, to cast any doubt upon the rule of equity that the identity of trust money paid by a recipient thereof into his banking account and there mixed with his own moneys can be preserved (and, as I think, can only be preserved), if it be shown that at the time of payment in that recipient was clothed with a fiduciary character. I think that the correctness of this conclusion is illustrated by reference to a subsequent passage in Lord Parker's speech, which I have already read, namely, his statement of the equity involved in the Grace-Calvert case(3).

I can find nothing in the speech of Lord Sumner which would support the plaintiffs' contention. I need not quote from the speech in any detail. In the last paragraph he says(4): "My Lords, I agree, without recapitulating reasons, that the principle on which Hallett's case(1) is founded justifies an order allowing the appellants to follow the assets, not merely to the verge of actual identification, but even somewhat further in a case like the present, where, after a process of exclusion, only two classes or groups of persons, having equal claims, are left in and all superior claims have been eliminated. Tracing in a sense it is not, for we know that the money coming from A went into one security and that coming from B into another, and that the two securities did not probably depreciate exactly in the same percentage, and we know further that no one will ever know any more. Still

(1) 13 Ch. D. 696.

(2) [1914] A. C. 398, 442, 443.

(3) Ibid. 444.

(4) Ibid. 459.

I think this well within the 'tracing' equity, and that among persons making up these two groups the principle of rateable division of the assets is sound."

The effect of that paragraph, as I understand it, is that on the facts of the case Lord Sumner was of opinion that the first part of the rule in In re Hallett's Estate (1) applied, so as to allow entry into the mass, namely, because of the existence of the fiduciary relationship in which the directors of the society stood, but that in the special circumstances of the case the second part of the rule did not apply. This is entirely consistent with his observation on the previous page(2): "In my opinion, if precedent fails, the most just distribution of the whole must be directed, so only that no recognized rule of law or equity be disregarded."

Lord Sumner was not concerned, and it is, I think, plain that he was not dealing with the effect on the continued identity of trust moneys of an innocent recipient paying them into his banking account and there mixing them with his own.

In my judgment, therefore, the case of Sinclair v. Brougham (3) cannot be regarded as an authority which casts any doubt on the rule of equity that, where trust moneys are paid by a recipient thereof into his banking account and there mixed with his own moneys (in which event the identity of the trust moneys is lost in fact) their identity will be preserved in the eye of equity, if, at the time of payment in the recipient can be said to be a fiduciary agent.

It was urged on me by counsel for the plaintiffs that if I should come to the conclusion to which I have come, that the authorities do not support their claim to trace the trust moneys into the banking accounts of the defendant institutions, in cases where the trust moneys have been mixed in such accounts with the moneys of the respective defendant institutions, yet on principle I should allow their claim to trace. I cannot see how I can accede to that submission. I regard the decision in In re Hallett's Estate (1) as extended and refined by the decided cases to which I have referred, as laying down the extent to which equity will allow the tracing of trust money into a banking account, where it is mixed with other moneys, and as requiring, as an essential condition precedent to allowing entry into the banking account, that it be shown that the person into whose account the trust moneys have been paid was, at the date of payment in, a fiduciary agent. If that be correct, then

(1) 13 Ch. D. 696.

(2) [1914] A.C. 398, 458.

(3) Ibid 398.